# UMH PROPERTIES, INC. (UMH) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from UMH PROPERTIES, INC.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/752642/000149315222005400/form10-k.htm
Accession: 0001493152-22-005400
Filing date: 2022-02-24
Report date: 2021-12-31
Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization.
Confidence: high

Company profile: /company/UMH/
All MD&A years: /company/UMH/mda/
Next year: /company/UMH/mda/fy2022/ (FY 2022)

Item
7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

2021
Accomplishments

During
2021, UMH made substantial progress on multiple fronts – generating solid operating results, achieving strong growth and improving
our financial position. We have:

[[GREPCENT_TABLE]]
[["","\u25cf","Increased Rental and Related Income by 11%;"],["","\u25cf","Increased Community Net Operating Income (\u201cNOI\u201d) by 13%;"],["","\u25cf","Increased Normalized Funds from Operations (\u201cNormalized FFO\u201d) by 41% and Normalized FFO per share by 24%;"],["","\u25cf","Improved our Operating Expense ratio by 130 basis points to 42.8%;"],["","\u25cf","Increased Same Property NOI by 13%;"],["","\u25cf","Increased Same Property Occupancy by 413 sites from 85.4% to 87.1% or 170 basis points;"],["","\u25cf","Increased our rental home portfolio by 454 homes to approximately 8,700 total rental homes, representing an increase of 6%;"],["","\u25cf","Increased rental home occupancy by 90 basis points from 94.6% to 95.5%;"],["","\u25cf","Increased Sales of Manufactured Homes by 34%;"],["","\u25cf","Acquired three communities containing approximately 543 homesites for a total cost of approximately $18.3 million (in addition to one community acquired in December 2021 by our joint venture with Nuveen Real Estate);"],["","\u25cf","Increased our Total Market Capitalization by 50% to $2.4 billion at yearend;"],["","\u25cf","Increased our Equity Market Capitalization by 127% to $1.4 billion at yearend;"],["","\u25cf","Reduced our Net Debt to Total Market Capitalization from 34% at 2020 to 16% at 2021;"],["","\u25cf","Issued and sold approximately 8.2 million shares of Common Stock through At-the-Market Sale Programs for our Common Stock at a weighted average price of $22.14 per share, generating gross proceeds of $182.0 million and net proceeds of $179.1 million, after offering expenses;"],["","\u25cf","Issued and sold, through an At-the-Market Sale Program for our Preferred Stock, 2.2 million shares of Series D Preferred Stock at a weighted average price of $24.89 per share, generating total gross proceeds of $54.1 million and total net proceeds of $53.2 million, after offering expenses; and"],["","\u25cf","Entered into a joint venture with Nuveen Real Estate, a TIAA company, for the purpose of development or acquisition of new manufactured housing communities, with an initial capital commitment by the joint venture partners of at least $70 million and potentially up to $170 million, 60% of which would be provided by Nuveen Real Estate and 40% of which would be provided by the Company. The joint venture acquired one community, containing approximately 219 developed home sites, for a total purchase price of $22.2 million."]]
[[/GREPCENT_TABLE]]

-36-

Refer
to the discussion below in this Item 7, Management’s Discussion and Analysis of Financial Condition, Results of Operations,
and Non-GAAP 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.

Overview

The
following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the historical Consolidated Financial Statements and Notes thereto included elsewhere in this
Form 10-K.

The
Company is a Maryland corporation that operates as 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 residents. The Company also leases manufactured homes to residents and, through
its wholly-owned taxable REIT subsidiary, S&F, sells and finances the sale of manufactured homes to residents and prospective residents
of our communities and for placement on customers’ privately-owned land.

As
of December 31, 2021, we owned and operated 127 manufactured home communities containing approximately 24,000 developed homesites. These
communities are located in New Jersey, New York, Ohio, Pennsylvania, Tennessee, Indiana, Michigan, Maryland, Alabama and South Carolina.
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, 2021, we purchased three manufactured home communities, located
in Alabama, Ohio and South Carolina, for an aggregate purchase price of $18.3 million. These acquisitions added approximately 543
developed homesites to our portfolio. The Company also operates one community in Florida owned by the Company’s joint venture
with Nuveen Real Estate that was formed in December 2021.

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 and the brokering of home sales and revenue under cable service agreements as well
as from appreciation in the values of the manufactured home communities and vacant land owned by the Company. In addition, the Company
receives property management and other fees from its joint venture with Nuveen Real Estate. 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
equity 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 2021, total income increased 14% from
the prior year due to the acquisition and rental programs, rent increases and the growth of our sales business and Community NOI
(as defined below) increased 13% from the prior year. Overall occupancy was 86.0% and 85.0% at December 31, 2021 and 2020, respectively.
Overall occupancy includes communities acquired in 2021 with an average occupancy of 59%. Same property occupancy, which includes communities
owned and operated as of January 1, 2020, increased from 85.4% at December 31, 2020 to 87.1% at December 31, 2021. (Unless expressly
indicated, information in this report with respect to the Company’s properties, including financial and operating results for the
year ended December 31, 2021, does not include the property owned by the Company’s joint venture with Nuveen Real Estate.)

Sales
of manufactured homes performed well during 2021, increasing by 34% year-over-year. Demand for quality affordable housing remains healthy.
Conventional single-family home prices continue their rise supported by low inventories and increasing sales. As 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. 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 strong demand for rental homes. During 2021, our portfolio of rental homes increased
by 454 homes. Occupied rental homes represent approximately 40.2% of total occupied sites. Occupancy in rental homes continues to be
strong and is at 95.5% as of December 31, 2021. 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.

-37-

The
Company holds a portfolio of marketable equity securities of other REITs with a fair value of $113.7 million at December 31, 2021,
representing 7.2% 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, 2021, 2% of the Company’s portfolio consisted of REIT preferred stocks and
98% consisted of 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. The
Company’s weighted average yield on the securities portfolio was approximately 4.4% at December 31, 2021. At December 31, 2021,
the Company had unrealized losses of $14.3 million in its REIT securities portfolio. During 2021, the Company sold positions in securities,
generating realized gains of 2.3 million. It is our intent to hold these securities for investment on a long-term basis.

The
Company continues to strengthen its balance sheet. During 2021, the Company raised approximately $9.8 million in new capital through
the Dividend Reinvestment and Stock Purchase Plan (“DRIP”). During the year ended December 31, 2021, through an At-the-Market
Sale Program for our Series C Preferred Stock and Series D Preferred Stock (the “2020 Preferred ATM Program”), the Company
issued and sold a total of 2.2 million shares of our Series D Preferred Stock, generating gross proceeds of $54.1 million and net proceeds
of $53.2 million, after offering expenses.

During
the year ended December 31, 2021, through an At-the-Market Sale Program for our Common Stock (the “2020 Common ATM Program”),
that we commenced in June 2020 and an At-the-Market Sale Program (the “2021 Common ATM Program”) that we commenced
in August 2021, the Company issued and sold a total of 8.2 million shares of our Common Stock, generating gross proceeds of $182.0 million
and net proceeds of $179.1 million, after offering expenses.

The
Company believes that its capital structure, which allows for the ownership of assets using a balanced combination of equity obtained
through the issuance of common stock, preferred stock and debt, will enhance shareholder returns as the properties appreciate over time.

At
December 31, 2021, the Company had approximately $116.2 million in cash and cash equivalents and $50 million available on our credit
facility, with an additional $50 million potentially available pursuant to an accordion feature. We also had $31.6 million available
on our revolving lines of credit for the financing of home sales and the purchase of inventory and $15 million available on our line
of credit secured by rental homes and rental homes leases. Subsequent to year end, the Company completed an offering to investors
in Israel of $102.7 million principal amount of its 4.72% Series A Bonds due February 28, 2027.

The
Company intends to continue to increase its real estate investments. Our business plan includes acquiring communities that over time
are expected to yield in excess of our cost of funds and then making physical improvements, including adding rental homes onto otherwise
vacant sites. In 2020 and 2021, we added a total of five manufactured home communities to our portfolio, encompassing approximately 850
developed sites. These manufactured home communities were acquired with an average occupancy rate of 61%. The Company will utilize the
rental home program to seek to increase occupancy rates and improve operating results at these communities. In addition, on behalf
of our recently-formed joint venture with Nuveen Real Estate, we will seek opportunities to acquire manufactured home communities that
are under development and/or newly developed and meet certain other investment guidelines. There is no guarantee that acquisition
opportunities will continue to materialize or that the Company will be able to take advantage of such opportunities. The growth
of our real estate portfolio and success of the joint venture 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.

-38-

Acquisitions
in 2021 and 2020

The
following table lists the property acquisitions completed by the Company during the years ended December 31, 2021 and 2020:

[[GREPCENT_TABLE]]
[["Community","","Date of Acquisition","","","State","","","Number of Sites","","","Purchase Price (in thousands)","","","Number of Acres","","","Occupancy at Acquisition"],["Acquisitions in 2021"],["Deer Run","","","January 8, 2021","","","","AL","","","","195","","","$","4,555","","","","33","","","","37","%"],["Iris Winds","","","January 21, 2021","","","","SC","","","","142","","","","3,445","","","","24","","","","49","%"],["Bayshore Estates","","","June 1, 2021","","","","OH","","","","206","","","","10,300","","","","56","","","","86","%"],["Total 2021","","","","","","","","","","","543","","","$","18,300","","","","113","","","","59","%"],["Acquisitions in 2020"],["Camelot Woods","","","July 24, 2020","","","","PA","","","","147","","","$","3,340","","","","27","","","","56","%"],["Lake Erie Estates","","","September 21, 2020","","","","NY","","","","163","","","","4,500","","","","21","","","","71","%"],["Total 2020","","","","","","","","","","","310","","","$","7,840","","","","48","","","","64","%"]]
[[/GREPCENT_TABLE]]

In
addition to the acquisitions shown above, on December 22, 2021, the Company, on behalf of its joint venture with Nuveen Real Estate,
closed on the acquisition of Sebring Square, a newly developed manufactured home community located in Sebring, Florida containing 219
developed homesites, for a total purchase price of $22.2 million. This community is situated on approximately 39 acres and is now open
for occupancy. The joint venture realized minimal revenue from this community during 2021.

Results
of Operations

2021
vs. 2020

Rental
and related income increased from $143.3 million for the year ended December 31, 2020 to $159.0 million for the year ended December 31,
2021, or 11%. This increase was due to the acquisitions during 2020 and 2021, as well as an increase in rental rates, same property occupancy
and additional rental homes. During 2021, 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
86.0% and 85.0% at December 31, 2021 and 2020, respectively. Overall occupancy includes communities acquired in 2021 and 2020, which
had an average occupancy of 59% and 64%, respectively, at the time of acquisition. Same property occupancy has increased from 85.4% at
December 31, 2020 to 87.1% at December 31, 2021. (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, 2021,
we had approximately 8,700 rental homes with an occupancy rate of 95.5%. We continue to evaluate the demand for rental homes and
will invest in additional homes as demand dictates.

Community
operating expenses increased from $63.2 million for the year ended December 31, 2020 to $68.0 million for the year ended December 31,
2021, or 8%. This increase was primarily due to new acquisitions, and increases in snow removal costs, tree removal, water and sewer,
real estate taxes and payroll and personnel costs.

Community
NOI increased from $80.2 million for the year ended December 31, 2020 to $91.0 million for the year ended December 31, 2021, or 13%.
This increase was primarily due to the acquisitions during 2020 and 2021 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) improved from 44.1% in 2020
to 42.8% for 2021. Many recently acquired communities have deferred maintenance requiring higher than normal expenditures in the first
few years of ownership. In addition, expansions of our communities may require investments in infrastructure before we can generate
revenue from additional sites. Because most of the community expenses consist of fixed costs, as occupancy rates increase, these
expense ratios are expected to continue to improve. Since the Company has the 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.

-39-

Sales
of manufactured homes increased from $20.3 million for the year ended December 31, 2020 to $27.1 million for the year ended December
31, 2021, or 34%. The total number of homes sold was 370 homes in 2021 as compared to 323 homes in 2020. There were 182 new homes sold
in 2021 as compared to 140 in 2020. The Company’s average sales price was approximately $73,000 and $63,000 for the years ended
December 31, 2021 and 2020, respectively. Cost of sales of manufactured homes increased from $14.4 million for the year ended December
31, 2020 to $20.1 million for the year ended December 31, 2021, or 39%. The gross profit percentage was 26% and 29% for 2021 and 2020,
respectively. Selling expenses decreased from $4.9 million for the year ended December 31, 2020 to $4.8 million for the year ended December
31, 2021, or 3%. Gain 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) increased from a gain of $768,000 for the year ended December 31, 2020
to a gain of $2.0 million for the year ended December 31, 2021. Many of the costs associated with sales, such as rent, salaries, and
to an extent, advertising and promotion, are fixed. The National Association of Realtors reported that in December 2021, sales of existing
homes grew 9% from December 2020. Home prices have continued their rise as fewer sellers are listing homes and inventories decline. With
the passage of time, the inherent relative 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 revenue and represent an investment in the upgrading
of our communities.

General
and administrative expenses increased from $11.1 million for the year ended December 31, 2020 to $14.1 million for the year ended December
31, 2021, or 27%. These increases were due to an increase in personnel costs, including an increase in the bonus accrual based on FFO
metrics and an increase in stock-based compensation, including special restricted stock grants for the 2020 groundbreaking Fannie Mae
financing. General and administrative expenses, excluding non-recurring expenses, as a percentage of gross revenue (total income plus
interest, dividend and other income) was 6.2% and 6.4% at December 31, 2021 and 2020, respectively.

Depreciation
expense increased from $41.7 million for the year ended December 31, 2020 to $45.1 million for the year ended December 31, 2021, or 8%.
This increase was primarily due to the acquisitions and the increase in rental homes during 2021 and 2020.

Interest
income increased from $2.9 million for the year ended December 31, 2020 to $3.4 million for the year ended December 31, 2021, or 15%.
This increase was primarily due to an increase in the average balance of notes receivable from $40.4 million for the year ended December
31, 2020 to $48.6 million for the year ended December 31, 2021.

Dividend
income decreased from $5.7 million for the year ended December 31, 2020 to $5.1 million for the year ended December 31, 2021, or 11%.
This decrease was primarily due to reduced dividends from our securities holdings. Dividends received from our marketable securities
investments were at a weighted average yield of approximately 4.4% and 4.7% at December 31, 2021 and 2020, respectively.

Gain
on sales of marketable securities amounted to $2.3 million for the year ended December 31, 2021. Increase (decrease) in fair value of
marketable securities increased from an unrealized loss of $14.1 million for the year ended December 31, 2020 to an unrealized gain of
$25.1 million for the year ended December 31, 2021. As of December 31, 2021, the Company had total net unrealized losses of $14.3 million
in its REIT securities portfolio.

Interest
expense, including amortization of financing costs, increased from $18.3 million for the year ended December 31, 2020 to $19.2 million
for the year ended December 31, 2021, or 5%. The average balance of mortgages payable was approximately $462.0 million during 2021 as
compared to approximately $421.5 million during 2020. The weighted average interest rate on mortgages, not including the effect of unamortized
debt issuance costs, was 3.8% at both December 31, 2021 and 2020.

-40-

2020
vs. 2019

Rental
and related income increased from $128.6 million for the year ended December 31, 2019 to $143.3 million for the year ended December 31,
2020, or 11%. This increase was due to the acquisitions during 2019 and 2020, as well as an increase in rental rates, same property occupancy
and additional rental homes. During 2020, 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
85.0% and 82.0% at December 31, 2020 and 2019, respectively. Overall occupancy includes communities acquired in 2020 and 2019, which
had an average occupancy of 64% and 62%, respectively, at the time of acquisition. Same property occupancy increased from 83.6% at December
31, 2019 to 86.8% at December 31, 2020. The same property occupancy rate is exclusive of the sites at Memphis Blues, which is under redevelopment
due to a flood in 2011. As of December 31, 2020, we had approximately 8,300 rental homes with an occupancy of 94.6%.

Community
operating expenses remained relatively stable increasing from $61.7 million for the year ended December 31, 2019 to $63.2 million for
the year ended December 31, 2020, or 2%.

Community
NOI increased from $66.9 million for the year ended December 31, 2019 to $80.2 million for the year ended December 31, 2020, or 20%.
This increase was primarily due to the acquisitions during 2019 and 2020 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 47.5% and 44.1%, excluding
non-recurring operating expenses, for the years ended December 31, 2019 and 2020, respectively.

Sales
of manufactured homes increased from $18.0 million for the year ended December 31, 2019 to $20.3 million for the year ended December
31, 2020, or 13%. The total number of homes sold was 323 homes in 2020 as compared to 299 homes in 2019. There were 140 new homes sold
in 2020 as compared to 135 in 2019. The Company’s average sales price was approximately $63,000 and $60,000 for the years ended
December 31, 2020 and 2019, respectively. Cost of sales of manufactured homes increased from $12.9 million for the year ended December
31, 2019 to $14.4 million for the year ended December 31, 2020, or 11%. The gross profit percentage was 29% and 28% for 2020 and 2019,
respectively. Selling expenses decreased from $5.1 million for the year ended December 31, 2019 to $4.9 million for the year ended December
31, 2020, or 3%. Gain 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) increased from a loss of $290,000 for the year ended December 31, 2019
to a gain of $768,000 for the year ended December 31, 2020. Many of the costs associated with sales, such as rent, salaries, and to an
extent, advertising and promotion, are fixed. The National Association of Realtors reported that in December 2020, sales of existing
homes grew 22% from December 2019.

General
and administrative expenses increased from $10 million for the year ended December 31, 2019 to $11.1 million for the year ended December
31, 2020, or 10%. These increases were due to an increase in personnel costs, including an increase in incentive compensation based on
FFO metrics and an increase in matching contributions associated with our 401(k) Plan. General and administrative expenses, excluding
non-recurring expenses, as a percentage of gross revenue (total income plus interest, dividend and other income) was 6.4% and 6.3% at
December 31, 2020 and 2019, respectively.

Depreciation
expense increased from $36.8 million for the year ended December 31, 2019 to $41.7 million for the year ended December 31, 2020, or 13%.
This increase was primarily due to the acquisitions and the increase in rental homes during 2020 and 2019.

Interest
income increased from $2.6 million for the year ended December 31, 2019 to $2.9 million for the year ended December 31, 2020, or 11%.
This increase was primarily due to an increase in the average balance of notes receivable from $33.1 million for the year ended December
31, 2019 to $40.4 million for the year ended December 31, 2020.

-41-

Dividend
income decreased from $7.5 million for the year ended December 31, 2019 to $5.7 million for the year ended December 31, 2020, or 24%.
This decrease was primarily due to reduced dividends from our securities holdings, as many REITs reduced their dividends in 2020 due
to the COVID-19 pandemic. Dividends received from our marketable securities investments were at a weighted average yield of approximately
4.7% and 6.3% at December 31, 2020 and 2019, respectively.

Increase
(decrease) in fair value of marketable securities decreased from an unrealized gain of $14.9 million for the year ended December 31,
2019 to an unrealized loss of $14.1 million for the year ended December 31, 2020. This decrease was due to the effects of the COVID-19
pandemic on prices in the securities market. As of December 31, 2020, the Company had total net unrealized losses of $39.4 million in
its REIT securities portfolio.

Interest
expense, including amortization of financing costs, increased from $17.8 million for the year ended December 31, 2019 to $18.3 million
for the year ended December 31, 2020, or 3%. This increase was primarily due to the $106 million Fannie Mae credit facility we entered
into during August 2020. The average balance of mortgages payable was approximately $421.5 million during 2020 as compared to approximately
$352.4 million during 2019. The weighted average interest rate on mortgages, not including the effect of unamortized debt issuance costs,
was 3.8% at December 31, 2020 as compared to 4.1% at December 31, 2019.

Non-GAAP
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 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 thousands):

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Rental and Related Income","","$","159,010","","","$","143,344","","","$","128,611"],["Community Operating Expenses","","","(68,046",")","","","(63,175",")","","","(61,708",")"],["Community NOI","","$","90,964","","","$","80,169","","","$","66,903"]]
[[/GREPCENT_TABLE]]

We
assess and measure our overall operating results based upon FFO an industry performance measure 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 NAREIT, represents net income (loss) attributable to common shareholders, as defined by accounting
principles generally accepted in the U.S. (“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.

-42-

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.

The
Company’s FFO and Normalized FFO attributable to common shareholders are calculated as follows (in thousands except footnotes):

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Net Income (Loss) Attributable to Common Shareholders","","$","21,249","","","$","(29,759",")","","$","2,566"],["Depreciation Expense","","","45,124","","","","41,707","","","","36,811"],["Loss on Sales of Investment Property and Equipment","","","170","","","","216","","","","111"],["(Increase) Decrease in Fair Value of Marketable Securities","","","(25,052",")","","","14,119","","","","(14,915",")"],["Gain on Sales of Marketable Securities, net","","","(2,342",")","","","-0-","","","","-0-"],["FFO Attributable to Common Shareholders","","","39,149","","","","26,283","","","","24,573"],["Adjustments:"],["Redemption of Preferred Stock","","","-0-","","","","2,871","","","","-0-"],["Non-Recurring Other Expense (1)","","","1,995","","","","-0-","","","","634"],["Normalized FFO Attributable to Common Shareholders","","$","41,144","","","$","29,154","","","$","25,207"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","Consists of special bonus and restricted stock grants for the August 2020 groundbreaking Fannie Mae financing, which are being expensed over the vesting period ($1.8 million) and non-recurring expenses for the joint venture ($171,000) in 2021, 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."]]
[[/GREPCENT_TABLE]]

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, distributions to the Company’s shareholders, acquisitions,
capital improvements, development and expansions of properties, debt service, purchases of manufactured home inventory and rental
homes, financing of manufactured home sales and payments of expenses relating to real estate operations. The Company’s ability
to generate cash adequate to meet these demands is dependent primarily on income from its real estate investments and marketable
securities portfolio, the sale of real estate investments and marketable securities, refinancing of mortgage debt, leveraging of
real estate investments, availability of bank borrowings or lines of credit, proceeds from the DRIP and access to the capital
markets. In addition to cash generated through operations, the Company uses a variety of sources to fund its cash needs, including
acquisitions. Specifically, the Company may sell marketable securities from its investment portfolio, borrow on its unsecured credit
facility or lines of credit, finance and refinance its properties, and/or raise capital through the DRIP and capital markets. In
order to provide financial flexibility to opportunistically access the capital markets, the Company has implemented At-the-Market
Sales Programs for both our common and preferred stock. The 2021 Common ATM Program, commenced in August 2021, allowed
the Company to offer and sell shares of the Company’s common stock, having an aggregate sales price of up to $100
million from time to time through the Distribution Agents for the 2021 Common ATM Program. All shares of Common Stock available
to be sold under the 2021 Common ATM Program have been sold. The Company intends to commence a new At-the-Market Sales
Program for its common stock during the first quarter of 2022. The Company’s 2020 Preferred ATM Program allows the Company
to 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 from time to time.

-43-

The
Company intends to continue to increase its real estate investments. Our business plan includes acquiring communities that over time
are expected to yield in excess of our cost of funds and then investing in physical improvements, including adding rental homes onto
otherwise vacant sites. In addition, on behalf of our recently-formed joint venture with Nuveen Real Estate, we will seek opportunities
to acquire manufactured home communities that are under development and/or newly developed and meet certain other investment guidelines.
There is no guarantee that any of these additional opportunities will materialize or that the Company will be able to take advantage
of such opportunities. The growth of our real estate portfolio and success of our joint venture 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. To the extent that funds or appropriate communities are not available, fewer acquisitions
will be made.

The
Company continues to strengthen its capital and liquidity positions and maintains financial flexibility. Through our 2020 Preferred ATM
Program, the Company issued and sold a total of 2.2 million shares of our Series D Preferred Stock generating gross proceeds of $54.1
million and net proceeds after offering expenses of $53.2 million during the year ended December 31, 2021.

During
the year ended December 31, 2021, the Company issued and sold 8.2 million shares of Common Stock through our 2020 Common ATM Program
and our 2021 Common ATM Program at a weighted average price of $22.14 per share, generating gross proceeds of $182.0 million and
net proceeds of $179.1 million, after offering expenses.

As
of December 31, 2021, $4.0 million of common stock remained available for sale under the 2021 Common ATM Program and $12.2 million
in shares of Series C Preferred Stock and/or Series D Preferred Stock remained available for sale under the 2020 Preferred ATM Program.
Subsequent to year end, in January 2022, the Company issued and sold 300,000 shares of Common Stock under the 2021 Common ATM
Program for gross proceeds of $8.0 million.

In
addition, the Company has a DRIP in which participants can purchase original issue shares of common stock from the Company at
a price of approximately 95% of market. During 2021, amounts received under the DRIP, including dividends reinvested of $3.5 million,
totaled $9.8 million. The Company issued a total of 503,000 shares under the DRIP during 2021.

The
Company also has the ability to finance home sales, inventory purchases and rental home purchases. The Company has a $20 million revolving
line of credit for the financing of homes, of which $6 million was utilized at December 31, 2021, and revolving credit facilities totaling
$28.5 million to finance inventory purchases, of which $10.9 million was utilized at December 31, 2021.

As
of December 31, 2021, the Company had $116.2 million of cash and cash equivalents and marketable securities of $113.7 million. The Company
owned 127 communities of which 28 are unencumbered. The Company’s marketable securities and non-mortgaged properties provide us
with additional liquidity. As of December 31, 2021, the Company also held a 40% equity interest in its joint venture with Nuveen Real
Estate, which owns one newly developed community that is unencumbered. Subsequent to year end, the Company completed an offering
to investors in Israel of $102.7 million of its new unsecured 4.72% Series A Bonds due February 28, 2027. The Company believes
that cash on hand, funds generated from operations, the DRIP and capital markets, 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 2021, total investment property, including rental homes, increased 9% or $96.6 million. The Company made acquisitions
of three manufactured home communities totaling 543 developed sites at an aggregate purchase price of $18.3 million. These acquisitions
were funded by the use of our unsecured credit facility. See Note 3 of the Notes to Consolidated Financial Statements for additional
information on our acquisitions and Note 6 of the Notes to Consolidated Financial Statements for related debt transactions. In addition,
in December 2021, the Company’s joint venture with Nuveen Real Estate acquired one newly-developed community in Florida containing
219 developed homesites, for a total purchase price of $22.2 million, 40% of which was funded by the Company. The Company continues
to evaluate acquisition opportunities. The funds for these acquisitions (including the Company’s 40% share of acquisition costs
that may be incurred by the joint venture with Nuveen Real Estate) may come from bank borrowings, proceeds from the DRIP, and private
placements or public offerings of debt, common or preferred stock, including under a new ATM Program for the Company’s
common stock expected to be commenced in the first quarter of 2022 or the 2020 Preferred ATM Program. To the extent that funds
or appropriate properties are not available, fewer acquisitions will be made.

-44-

The
Company owned approximately 8,700 rental homes, or approximately 36% of our total homesites as of December 31, 2021. During 2021, our
rental home portfolio increased by 454 homes or $33.7 million. The Company markets these rental homes for sale to existing residents.
The Company estimates that in 2022 it will order approximately 700-800 manufactured homes to use as rental units at its properties
for a total cost, including setup, of approximately $56 million. Rental home rates on new homes range from approximately $650-$1,500
per month, including lot rent, depending on size, location and market conditions. During 2021, the Company also invested approximately
$25 million in other improvements to its communities.

Additionally,
the Company has investments in marketable 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 2021, the securities
portfolio increased 10% or $10.6 million primarily due to a net unrealized gain of $25.1 million, realized gain of $2.3 million
partially offset by sales of $14.5 million. The Company had dividend income earned of $5.1 million. The Company from time to time may
purchase these securities on margin when there is an adequate yield spread.

The
following table summarizes cash flow activity for the years ended December 31, 2021, 2020 and 2019 (in thousands):

[[GREPCENT_TABLE]]
[["","","2021","","","2020","","","2019"],["Net Cash Provided by Operating Activities","","$","65,163","","","$","66,839","","","$","38,516"],["Net Cash Used in Investing Activities","","","(94,364",")","","","(103,770",")","","","(122,350",")"],["Net Cash Provided by Financing Activities","","","125,634","","","","46,528","","","","90,053"],["Net Increase in Cash, Cash Equivalents and Restricted Cash","","$","96,433","","","$","9,597","","","$","6,219"]]
[[/GREPCENT_TABLE]]

Net
cash provided by operating activities remained relatively stable in 2020 and 2021. Net cash provided by operating activities increased
by $28.3 million in 2020 to $66.8 million. This increase was primarily due to an increase in Community NOI and a decrease in inventory
in 2020 compared to an increase in 2019.

Net
cash used in investing activities decreased by $9.4 million in 2021, primarily due to a decrease in acquisitions of manufactured homes
and the proceeds from sales of marketable securities offset by the increase in purchase of manufactured home communities and investment
in the joint venture. Net cash used in investing activities decreased by $18.6 million in 2020, primarily due to a decrease in acquisitions
of manufactured homes.

Net
cash provided by financing activities increased by $79.1 million in 2021 to $125.6 million. The Company received $9.8 million,
including dividends reinvested, through the DRIP. In addition, the Company issued and sold 2.2 million shares of its Series D Preferred
Stock during 2021 through the 2020 Preferred ATM Program, raising net proceeds of approximately $53.2 million. The Company also
issued and sold 8.2 million shares of its Common Stock during 2021 through the 2020 Common ATM Program and 2021 Common
ATM Program, raising net proceeds of approximately $179.1 million. During 2021, the Company distributed to our common shareholders
a total of $35.0 million, including dividends reinvested. In addition, the Company also paid $29.8 million in preferred dividends.

Net
cash provided by financing activities decreased by $43.5 million in 2020 to $46.5 million. The Company obtained new mortgages of $106
million. The Company also received $9.2 million, including dividends reinvested, through the DRIP. In addition, in 2020 the Company issued
and sold 134,000 shares of its Series C Preferred Stock and 3.8 million shares of its Series D Preferred Stock through the 2019 Preferred
ATM Program (described below) and the 2020 Preferred ATM Program, raising net proceeds during 2020 of approximately $96.1 million.
The Company also issued and sold 135,000 shares of its Common Stock through the 2020 Common ATM Program, raising net proceeds of approximately
$1.7 million. In October 2020, the Company voluntarily redeemed all of its Series B Preferred Stock for approximately $96.1 million.
During 2020, the Company distributed to our common shareholders a total of $29.8 million, including dividends reinvested. In addition,
the Company also paid $31.9 million in preferred dividends.

-45-

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 flows and refinancing. The dividend payments
were primarily made from cash flows from operations.

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
$15 million in capital improvements for 2022.

The
Company’s significant commitments and contractual obligations relate to its mortgages, loans payable and other indebtedness,
acquisitions of manufactured home communities, retirement benefits, and the lease on its corporate offices as described in Note 9
to the Consolidated Financial Statements.

The
Company has approximately 1,800 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, 2021, the Company had total assets of $1.3 billion and total liabilities of $528.7 million. Our net debt (net of cash
and cash equivalents) to total market capitalization as of December 31, 2021 and 2020 was approximately 16% and 34%, respectively. Our
net debt, less securities (net of cash and cash equivalents and marketable securities) to total market capitalization as of December
31, 2021 and 2020 was approximately 11% and 28%, respectively.

The
Company believes that it has the ability to meet its obligations and to generate funds for new investments.

Contractual Obligations

The
Company has an investment in its joint venture with Nuveen Real Estate which is accounted for under the equity method of
accounting as we have the ability to exercise significant influence, but not control, over the operating and financial decisions for
the joint venture. The terms of the joint venture require the Company to fund 40% of the total capital contributions made by the members
to the joint venture. See Note 5, “Investments in Joint Venture,” of the Notes to Consolidated Financial Statements for
additional information.

Our
other primary contractual obligations relate to our loans and mortgages payable and other indebtedness and our operating
lease obligations. See Note 2 “Summary of Significant Accounting Policies”, Note 6 “Loans and Mortgages Payable”
and Note 9 “Related Party Transactions and Other Matters” of the Notes to Consolidated Financial Statements for additional
information.

Impact
of COVID-19

The
following discussion is intended to provide certain information regarding the impacts of the COVID-19 pandemic on our business and management’s
efforts to respond to those impacts.

We
continue to monitor our operations and government recommendations and have taken steps to make the safety, security and welfare of our
employees, their families and our residents a top priority.

Collections
are consistent with pre-pandemic levels and we have collected 94% of January 2022 site and home rent as of today’s date. Some of
our residents benefitted from the federal government’s funding of the Emergency Rental Assistance Programs that were enacted in
each state.

The
impact of the COVID-19 pandemic remains uncertain and dependent on future developments, including the possible emergence of new variants
of the original virus and the ongoing roll-out of vaccines and their efficacy. We will continue to monitor these rapidly evolving developments
and respond in the best interests of our employees, residents and shareholders. At this time, we believe that the COVID-19 pandemic and
its consequences will not have a material adverse effect on our operations.

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.

-46-

Impairment
in Real Estate Investments

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. The Company’s primary
indicator of potential impairment is based on net operating income trends year over year. 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, 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, 2021, 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.

Recent
Accounting Pronouncements

See
Note 2 of the Notes to Consolidated Financial Statements.