# UMH PROPERTIES, INC. (UMH) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from UMH PROPERTIES, INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/752642/000149315224008183/form10-k.htm
Accession: 0001493152-24-008183
Filing date: 2024-02-28
Report date: 2023-12-31
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/
Previous year: /company/UMH/mda/fy2022/ (FY 2022)
Next year: /company/UMH/mda/fy2024/ (FY 2024)

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

2023
Accomplishments

During
2023, 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 14%;"],["","\u25cf","Increased Normalized Funds from Operations (\u201cNormalized FFO) by 16%;"],["","\u25cf","Increased Same Property NOI by 13%;"],["","\u25cf","Increased Same Property Occupancy by 230 basis points from 86.2% to 88.5%;"],["","\u25cf","Improved our Same Property expense ratio from 42.2% at yearend 2022 to 40.3% at yearend 2023;"],["","\u25cf","Increased our rental home portfolio by 871 homes from yearend 2022 to approximately 10,000 total rental homes, representing an increase of 10% from yearend 2022;"],["","\u25cf","Increased Sales of Manufactured Homes by 23%;"],["","\u25cf","Acquired our first community in Georgia, containing 118 developed homesites, for a total cost of $3.7 million through our qualified opportunity zone fund;"],["","\u25cf","Entered into a new joint venture agreement with Nuveen Real Estate to develop a 113-site community in Honey Brook, Pennsylvania;"],["","\u25cf","Amended our unsecured credit facility to expand available borrowing capacity from $100 million to $180 million;"],["","\u25cf","Entered into a $25 million term loan and a $25 million line of credit secured by rental homes and their leases;"],["","\u25cf","Expanded our revolving line of credit secured by eligible notes receivable from $20 million to $35 million;"],["","\u25cf","Financed eight existing communities for total proceeds of approximately $57.7 million;"],["","\u25cf","Raised our quarterly common stock dividend by 2.5% to $0.205 per share or $0.82 annually;"],["","\u25cf","Increased our Total Market Capitalization by 6% to over $2 billion at yearend;"],["","\u25cf","Increased our Equity Market Capitalization by 12% to over $1 billion at yearend;"],["","\u25cf","Reduced our Net Debt to Total Market Capitalization from 38.2% in 2022 to 31.3% in 2023;"],["","\u25cf","Issued and sold approximately 9.4 million shares of Common Stock through At-the-Market Sale Programs at a weighted average price of $15.81 per share, generating gross proceeds of $148.6 million and net proceeds of $145.8 million, after offering expenses;"],["","\u25cf","Issued and sold approximately 2.6 million shares of Series D Preferred Stock through At-the-Market Sale Programs at a weighted average price of $21.88 per share, generating gross proceeds of $56.7 million and net proceeds of $55.7 million, after offering expenses;"],["","\u25cf","Subsequent to year end, issued and sold approximately 1.2 million shares of Common Stock through our 2023 Common Stock At-the-Market Sale Program at a weighted average price of $15.37 per share, generating gross proceeds of $19.2 million and net proceeds of $18.9 million, after offering expenses; and"],["","\u25cf","Subsequent to year end, issued and sold approximately 121,000 shares of Series D Preferred Stock through our 2023 Series D Preferred Stock At-the-Market Sale Program at a weighted average price of $22.85 per share, generating gross proceeds of $2.8 million and net proceeds of $2.7 million, after offering expenses."]]
[[/GREPCENT_TABLE]]

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

-41-

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. During 2022, the Company also formed an opportunity zone
fund to acquire, develop and redevelop manufactured housing communities requiring substantial capital investment and located in areas
designated as Qualified Opportunity Zones by the Treasury Department pursuant to a program authorized under the 2017 Tax Cuts and Jobs
Act to encourage long-term investment in economically distressed areas. The Company currently holds a 77% percentage interest in the
opportunity zone fund.

As
of December 31, 2023, we owned and operated 135 manufactured home communities (including two communities acquired through the
opportunity zone fund) containing approximately 25,800 developed homesites. These communities are located in New Jersey, New York,
Ohio, Pennsylvania, Tennessee, Indiana, Michigan, Maryland, Alabama, South Carolina and Georgia. 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, 2023, we purchased one community located in Georgia, for an aggregate purchase price of
$3.7 million, through our opportunity zone fund. This acquisition added 118 developed homesites to our portfolio. The Company also
operates two communities in Florida owned by the Company’s joint venture with Nuveen Real Estate that was originally formed in
December 2021. On November 30, 2023, the Company expanded its joint venture relationship with Nuveen Real Estate and formed a new
joint venture entity focused on the development of a new manufactured housing community located in Honey Brook, Pennsylvania. As
with the original 2021 joint venture entity, UMH has a 40% stake in the new joint venture entity and serves as the managing member,
developer and operating member. The Honey Brook community, once complete, is expected to contain 113 manufactured home sites situated on
approximately 61 acres.

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, self-storage leases, oil and gas
leases, cable service agreements and 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 arrangements with Nuveen and from its
opportunity zone fund. Management views the Company as a single segment based on its method of internal reporting in addition to its
allocation of capital and resources.

Occupancy
in our properties, as well as our ability to increase rental rates, directly affects revenues. In 2023, total income increased 13%
from the prior year due to the acquisition and rental programs, rent increases and the growth of our sales business. Community NOI
(as defined below) increased 14% from the prior year. Overall occupancy increased 210 basis points from 84.6% as of December 31,
2022 to 86.7% as of December 31, 2023. Overall occupancy includes communities acquired in 2023 and 2022 with an average occupancy of
60%. Same property occupancy, which includes communities owned and operated as of January 1, 2022, increased 230 basis points from
86.2% as of December 31, 2022 to 88.5% as of December 31, 2023. (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, 2023, does not include the properties owned by the Company’s joint venture with Nuveen.)

Demand
for quality affordable housing remains healthy while inventory is scarce. Our property type offers substantial comparative value that
should result in continued high demand.

The
macro-economic environment and current housing fundamentals continue to favor home rentals. Due to climbing mortgage rates, the higher
cost of buying a home versus renting one is at its most extreme since 1996. 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 2023, our portfolio of rental homes increased by 871 homes, net. Occupied
rental homes represent approximately 42.0% of total occupied sites. Occupancy in rental homes continues to be strong and was at 94.0%
as of December 31, 2023. 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 equity securities of other REITs with a fair value of $34.5 million as of December 31, 2023,
representing 1.9% of our undepreciated assets (total assets excluding accumulated depreciation). The REIT securities portfolio
provides the Company with additional diversification, liquidity and income. As of December 31, 2023, 99% consisted of REIT common stocks and 1% of the
Company’s portfolio consisted of REIT preferred stocks. The Company does not intend to increase its investment in the REIT securities portfolio.

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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 6.7% at December 31, 2023. At December 31, 2023,
the Company had unrealized losses of $39.7 million in its REIT securities portfolio. During 2023, the Company sold positions in securities,
generating a net realized gain of $183,000.

The
Company continues to strengthen its balance sheet. During the year ended December 31, 2023, through an At-the-Market Sale Program
for our Common Stock that was established in April 2023 (the “2023 Common ATM Program”) and a prior At-the-Market Sale
Program established in 2022, the Company issued and sold a total of 9.4 million shares of our Common Stock, generating gross
proceeds of $148.6 million and net proceeds of $145.8 million, after offering expenses. Additionally, during 2023 the Company raised
approximately $9.0 million in new capital through the Dividend Reinvestment and Stock Purchase Plan (“DRIP”).

During
the year ended December 31, 2023, through an At-the-Market Sale Program for our Preferred Stock that was established in January 2023
(the “2023 Preferred ATM Program”) and a prior At-the-Market Sale Program established in 2020, the Company issued and sold
a total of approximately 2.6 million shares of our Series D Preferred Stock, generating gross proceeds of $56.7 million and net proceeds
of $55.7 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 and preferred stock and debt, will enhance shareholder returns as the properties appreciate over time.

On
December 31, 2023, the Company had approximately $57.3 million in cash and cash equivalents and $110 million available on our credit
facility, with an additional $400 million potentially available pursuant to an accordion feature. We also had $143.5 million available
on our revolving lines of credit for the financing of home sales and the purchase of inventory and $55 million available on our lines
of credit secured by rental homes and rental homes leases. Subsequent to year end, the Company paid down approximately $20 million on its credit facility (see Note 17).

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 investing in physical improvements, including adding rental homes
onto otherwise vacant sites. In 2022 and 2023, we added a total of eight manufactured home communities to our portfolio,
encompassing approximately 1,600 developed sites. These manufactured home communities were acquired with an average occupancy rate
of 60%. The Company will utilize the rental home program to increase occupancy rates and improve operating results at these
communities. As part of this plan, we intend to seek opportunities, through our opportunity zone fund, to acquire communities that
require substantial capital investment and are located in Qualified Opportunity Zones. In addition, through our joint venture
arrangement 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 with Nuveen will depend 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.

-43-

Acquisitions
in 2023 and 2022

The
following table lists the property acquisitions completed by the Company during the years ended December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["Community","","Date of Acquisition","","State","","Number of Sites","","","Purchase Price (in thousands)","","","Number of Acres","","","Occupancy at Acquisition"],["Acquisition in 2023"],["Mighty Oak","","January 19, 2023","","GA","","","118","","","$","3,650","","","","26","","","","0","%"],["Total 2023","","","","","","","118","","","$","3,650","","","","26","","","","0","%"],["Acquisitions in 2022"],["Center Manor","","March 31, 2022","","PA","","","96","","","$","5,800","","","","18","","","","83","%"],["Mandell Trails","","May 3, 2022","","PA","","","132","","","","7,375","","","","69","","","","70","%"],["Saddle Creek","","May 25, 2022","","AL","","","139","","","","3,878","","","","36","","","","6","%"],["Hidden Creek","","July 14, 2022","","MI","","","351","","","","22,000","","","","88","","","","63","%"],["Garden View Estates","","August 10, 2022","","SC","","","181","","","","5,200","","","","39","","","","33","%"],["Fohl Village","","November 22, 2022","","OH","","","321","","","","19,070","","","","170","","","","77","%"],["Oak Tree","","December 15, 2022","","NJ","","","260","","","","22,900","","","","41","","","","98","%"],["Total 2022","","","","","","","1,480","","","$","86,223","","","","461","","","","65","%"]]
[[/GREPCENT_TABLE]]

Mighty Oak, acquired in January
2023, and Garden View Estates, acquired in August 2022, were acquired through the Company’s opportunity zone fund.

In addition to the acquisitions shown above, in November 2023, 61 acres of land located in Honey Brook, Pennsylvania, previously owned by the Company,
with a carrying value cost basis of $3.8 million, was contributed to an entity formed under our joint venture with Nuveen for the purpose
of developing a new manufactured housing community, which, once complete, is expected to contain 113 sites. The Company was reimbursed by Nuveen for
60% of the carrying value of this land.

Also,
on December 23, 2022, an entity formed as part of our Nuveen joint venture closed on the acquisition of Rum Runner, a newly
developed all-age, manufactured home community located in Sebring, Florida, for a total purchase price of $15.1 million. This
community contains 144 developed homesites situated on approximately 20 acres.

Results
of Operations

2023
vs. 2022

Rental
and related income increased from $170.4 million for the year ended December 31, 2022 to $189.7 million for the year ended December 31,
2023, or 11%. This increase was primarily due to the acquisitions made during 2022, as well as increases in rental rates, same property
occupancy and additional rental homes. During 2023, the Company raised rental rates by 5% to 6% 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 86.7% and 84.6% at December 31, 2023 and 2022, respectively. Overall occupancy includes communities acquired in
2023 and 2022 which had an average occupancy of 60%, at the time of acquisition. Demand for rental homes continues to be strong. As of
December 31, 2023, we had approximately 10,000 rental homes with an occupancy rate of 94.0%. We continue to evaluate the demand for rental
homes and will invest in additional homes as demand dictates.

Community
operating expenses increased from $75.7 million for the year ended December 31, 2022 to $81.3 million for the year ended December 31,
2023, or 8%. This increase was primarily due to expenses pertaining to recently acquired communities during 2022, as well as increases in payroll, rental home expenses,
real estate taxes, waste removal, water expenses and sewer expenses.

Community
NOI increased from $94.8 million for the year ended December 31, 2022 to $108.4 million for the year ended December 31, 2023, or
14%. This increase was primarily due to the acquisitions during 2022, 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 150 basis points from 44.4% in 2022 to 42.9% for 2023. Many recently
acquired communities have deferred maintenance requiring higher than normal expenditures in the first few years of ownership. Since
most of the community expenses consist of fixed costs, as occupancy rates increase, these expense ratios are expected to continue to
improve. Due to the Company’s ability to increase its rental rates annually (subject to limitations on rent increases in
certain jurisdictions), increasing costs due to inflation and changing prices have generally not had a material effect on revenue
and income from continuing operations.

-44-

Sales
of manufactured homes increased from $25.3 million for the year ended December 31, 2022 to $31.2 million for the year ended December
31, 2023, or 23%. The total number of homes sold increased from 301 homes in 2022 to 341 homes in 2023. There were a 14% increase in
new homes sold from 144 new homes sold in 2022 to 164 new homes sold in 2023. The Company’s average
sales price increased 8% in 2023 and was approximately $91,000 for the year ended December 31, 2023 and $84,000 for the year ended
December 31, 2022. Cost of sales of manufactured homes increased from $17.6 million for the year ended December 31, 2022 to $21.1
million for the year ended December 31, 2023, or 20%. The gross profit percentage was 32% and 31% for 2023 and 2022, respectively.
Selling expenses increased from $5.3 million for the year ended December 31, 2022 to $6.9 million for the year ended December 31,
2023, or 32%. Gain from the sales operations, excluding interest on the financing of inventory, increased 24% and amounted to a gain
of $3.1 million and $2.5 million for the year ended December 31, 2023 and 2022, respectively. Many of the costs associated with
sales, such as salaries, and to an extent, advertising and promotion, are fixed. Despite an increase in mortgage rates, home prices
have continued their rise as fewer sellers are listing homes and inventories decline resulting in the inherent relative
affordability of our property type becoming 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 represent an investment in the upgrading of our communities.

General
and administrative expenses increased from $19.0 million for the year ended December 31, 2022 to $19.7 million for the year ended December
31, 2023, or 4%. This increase was due to an increase in payroll, personnel costs and non-cash stock-based compensation. General and
administrative expenses, excluding non-recurring expenses, as a percentage of gross revenue (total income plus interest, dividends and
other income) was approximately 8.0% and 7.6% for the years ended December 31, 2023 and 2022, respectively.

Depreciation
expense increased from $48.8 million for the year ended December 31, 2022 to $55.7 million for the year ended December 31, 2023, or 14%.
This increase was primarily due to the acquisitions and the increases in rental homes during 2023 and 2022.

Interest
income increased from $4.1 million for the year ended December 31, 2022 to $5.0 million for the year ended December 31, 2023, or 22%.
This increase was primarily due to an increase in the average balance of notes receivable from $58.6 million for the year ended December
31, 2022 to $71.5 million for the year ended December 31, 2023. The weighted average interest rate earned on these notes receivables increased 30 basis points and was 7.0% and 6.7%
as of December 31, 2023 and 2022, respectively

Dividend
income decreased from $2.9 million for the year ended December 31, 2022 to $2.3 million for the year ended December 31, 2023, or
20%. This decrease was due to reduced dividends from a combination of our smaller securities portfolio and the weighted average
yield on our dividends received from our marketable securities investments decreasing 90 basis points from 7.6% in 2022 to 6.7% in 2023.

The
Company recognized a realized gain on sales of marketable securities of $183,000 for the year ended December 31, 2023. The Company
recognized a realized gain on sales of marketable securities of $6.4 million for the year ended December 31, 2022 primarily as a
result of the cash consideration received in the MREIC merger, partially offset by a loss on sale of other marketable securities. The decrease in fair value of marketable securities amounted to $3.6
million and $21.8 million for the year ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the Company had
total net unrealized losses of $39.7 million in its REIT securities portfolio.

Interest
expense, including amortization of financing costs, increased from $26.4 million for the year ended December 31, 2022 to $32.5
million for the year ended December 31, 2023, or 23%. This increase was mainly due to the interest incurred on the $102.7 million of
Series A Bonds the Company issued in 2022 in an offering to investors in Israel, an increase in the average balance of total debt
and an increase in interest rates. The average balance of our total debt was approximately $734.5 million in 2023 and $637.1 million
in 2022.

-45-

2022
vs. 2021

Rental
and related income increased from $159.0 million for the year ended December 31, 2021 to $170.4 million for the year ended December 31,
2022, or 7%. This increase was due to the acquisitions during 2021 and 2022, as well as an increase in rental rates and additional rental
homes. During 2022, the Company raised rental rates by 4% to 5% 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 84.6% and 86.0% at
December 31, 2022 and 2021, respectively. Overall occupancy includes communities acquired in 2022 and 2021, which had an average occupancy
of 66% and 59%, respectively, at the time of acquisition. Demand for rental homes continues to be strong. As of December 31, 2022, we
had approximately 9,100 rental homes with an occupancy rate of 93.3%.

Community
operating expenses increased from $68.0 million for the year ended December 31, 2021 to $75.7 million for the year ended December 31,
2022, or 11%. This increase was primarily due to new acquisitions, and increases in waste removal, tree removal, water and sewer, insurance,
real estate taxes, travel and payroll and personnel costs.

Community
NOI increased from $91.0 million for the year ended December 31, 2021 to $94.8 million for the year ended December 31, 2022, or 4%. This
increase was primarily due to the acquisitions during 2021 and 2022 and an increase in rental rates and rental homes. The operating expense
ratio (defined as community operating expenses divided by rental and related income) was 42.8% in 2021 compared to 44.4% for 2022.

Sales
of manufactured homes decreased from $27.1 million for the year ended December 31, 2021 to $25.3 million for the year ended December
31, 2022, or 6%. The total number of homes sold in 2022 was 301 homes as compared to 370 homes in 2021. There were 144 new homes sold
in 2022 as compared to 182 in 2021. The Company’s average sales price was approximately $84,000 and $73,000 for the years ended
December 31, 2022 and 2021, respectively. Cost of sales of manufactured homes decreased from $20.1 million for the year ended December
31, 2021 to $17.6 million for the year ended December 31, 2022, or 13%. The gross profit percentage was 31% and 26% for 2022 and 2021,
respectively. Selling expenses increased from $4.8 million for the year ended December 31, 2021 to $5.3 million for the year ended December
31, 2022, or 10%. 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) amounted to a gain of $2.0 million for the year ended December 31, 2022
and 2021, respectively.

General
and administrative expenses increased from $14.1 million for the year ended December 31, 2021 to $19.0 million for the year ended December
31, 2022, or 35%. These increases were mainly due to non-recurring expenses relating to the cost of previously issued special restricted
stock grants for the groundbreaking Fannie Mae financing completed in 2020, expenses for the joint venture with Nuveen, the opportunity
zone fund, the issuance of the Series A Bonds, early extinguishment of debt and other legal expenses. These non-recurring expenses totaled
$3.5 million for the year ended December 31, 2022, compared to $2.0 million for the year ended December 31, 2021. General and administrative
expenses also increased due to an increase in personnel costs, stock-based compensation and travel. General and administrative expenses,
excluding non-recurring expenses, as a percentage of gross revenue (total income plus interest, dividend and other income) was 7.6% and
6.2% at December 31, 2022 and 2021, respectively.

-46-

Depreciation
expense increased from $45.1 million for the year ended December 31, 2021 to $48.8 million for the year ended December 31, 2022, or 8%.
This increase was primarily due to the acquisitions and the increase in rental homes during 2022 and 2021.

Interest
income increased from $3.4 million for the year ended December 31, 2021 to $4.1 million for the year ended December 31, 2022, or 22%.
This increase was primarily due to an increase in the average balance of notes receivable from $48.6 million for the year ended December
31, 2021 to $58.6 million for the year ended December 31, 2022.

Dividend
income decreased from $5.1 million for the year ended December 31, 2021 to $2.9 million for the year ended December 31, 2022, or 43%.
This decrease was primarily due to reduced dividends from the reduction of our securities holdings. Dividends received from our marketable
securities investments were at a weighted average yield of approximately 7.1% and 4.4% as of December 31, 2022 and 2021, respectively.

The
Company recognized a net gain on sales of marketable securities of $6.4 million for the year ended December 31, 2022, primarily as a result
of the cash consideration received in the MREIC merger, partially offset by a loss on sale of other marketable securities. The Company
recognized a gain on sales of marketable securities of $2.3 million for the year ended December 31, 2021. Increase (decrease) in fair
value of marketable securities decreased from an increase of $25.1 million for the year ended December 31, 2021 to a decrease of $21.8
million for the year ended December 31, 2022. As of December 31, 2022, the Company had total net unrealized losses of $36.1 million in
its REIT securities portfolio.

Interest
expense, including amortization of financing costs, increased from $19.2 million for the year ended December 31, 2021 to $26.4
million for the year ended December 31, 2022, or 38%. This increase was mainly due to interest on the Series A Bonds issued in 2022, an increase
in loans payable and an increase in interest rates.

Non-U.S.
GAAP Measures

In
addition to the results reported in accordance with U.S. GAAP, management’s discussion and analysis of financial condition and
results of operations include certain non-U.S. 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-U.S.
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 U.S. 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.

-47-

The
Company’s Community NOI for the years ended December 31, 2023, 2022 and 2021 is calculated as follows (in thousands):

[[GREPCENT_TABLE]]
[["","","2023","","","2022","","","2021"],["Rental and Related Income","","$","189,749","","","$","170,434","","","$","159,034"],["Community Operating Expenses","","","(81,343",")","","","(75,660",")","","","(68,046",")"],["Community NOI","","$","108,406","","","$","94,774","","","$","90,988"]]
[[/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 gains or losses
from sales of previously depreciated real estate assets, impairment charges related to depreciable real estate assets, the change in
the fair value of marketable securities, and the gain or loss on the sale 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 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 U.S. 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.

-48-

The
Company’s FFO and Normalized FFO attributable to common shareholders for the years ended December 31, 2023, 2022 and 2021 are calculated
as follows (in thousands):

[[GREPCENT_TABLE]]
[["","","2023","","","2022","","","2021"],["Net Income (Loss) Attributable to Common Shareholders","","$","(8,714",")","","$","(36,265",")","","$","21,249"],["Depreciation Expense","","","55,719","","","","48,769","","","","45,124"],["Depreciation Expense from Unconsolidated Joint Venture","","","692","","","","371","","","","-0-"],["Loss on Sales of Investment Property and Equipment","","","-0-","","","","169","","","","170"],["(Increase) Decrease in Fair Value of Marketable Securities","","","3,555","","","","21,839","","","","(25,052",")"],["Gain on Sales of Marketable Securities, net","","","(183",")","","","(6,394",")","","","(2,342",")"],["FFO Attributable to Common Shareholders","","","51,069","","","","28,489","","","","39,149"],["Adjustments:"],["Redemption of Preferred Stock (1)","","","-0-","","","","12,916","","","","-0-"],["Amortization (1)","","","2,135","","","","1,956","","","","-0-"],["Non-Recurring Other Expense (2)","","","1,329","","","","3,479","","","","1,995"],["Normalized FFO Attributable to Common Shareholders","","$","54,533","","","$","46,840","","","$","41,144"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(1)","During 2022, the Company incurred the carrying cost of excess cash for the redemption of preferred stock. Additionally, due to the change in sources of capital, amortization expense, a non-cash expense, is expected to become more significant and is therefore included as an adjustment to Normalized FFO for the years ended December 31, 2023 and 2022. Had a similar adjustment been made for the year ended December 31, 2021, Normalized FFO Attributable to Common Shareholders would have been $42,145."],["","(2)","Consists of the previously disclosed special bonus and restricted stock grants for the August 2020 groundbreaking Fannie Mae financing, which were being expensed over the vesting period ($862) and non-recurring expenses for the joint venture with Nuveen ($135), one-time legal fees ($76), fees related to the establishment of the OZ Fund ($37), and costs associated with acquisitions and financing that were not completed ($219) in 2023. Consists of special bonus and restricted stock grants for the August 2020 groundbreaking Fannie Mae financing, which were being expensed over the vesting period ($1,724) and non-recurring expenses for the joint venture with Nuveen ($264), early extinguishment of debt ($320), one-time legal fees ($197), fees related to the establishment of the OZ Fund ($954), and costs associated with acquisition not completed ($20) in 2022. Consists of special bonus and restricted stock grants for the August 2020 groundbreaking Fannie Mae financing, which were being expensed over the vesting period ($1,824) and non-recurring expenses for the joint venture with Nuveen ($171) in 2021."]]
[[/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, lines of credit, and other incurrence of indebtedness, proceeds from the
DRIP, and access to the capital markets, including through its Common and Preferred ATM Programs. In addition to cash generated
through operations, the Company uses a variety of sources to fund its cash needs, including acquisitions. The Company may sell
marketable securities from its investment portfolio, borrow on its unsecured credit facility or lines of credit, incur other
indebtedness, finance and refinance its properties, and/or raise capital through the DRIP and capital markets, including through the
Company’s ATM Programs. In order to provide financial flexibility to opportunistically access the capital markets, the Company
implemented a new 2023 Preferred ATM Program on January 10, 2023 that allows the Company to offer and sell shares of the
Company’s 6.375% Series D Cumulative Redeemable Preferred Stock having an aggregate sales price of up to $100 million from
time to time through its sales agent, B. Riley Securities, Inc. In addition, on April 4, 2023, the Company implemented a new 2023
Common ATM Program that allows the Company to offer and sell shares of the Company’s Common Stock having an aggregate sales
price of up to $150 million from time to time through the distribution agents for the 2023 Common ATM Program. Additionally, the
Company amended its unsecured line of credit to expand available borrowing capacity from $100 million to $180 million and
expanded/obtained new loans and lines of credit secured by rental homes, rental homes leases and notes receivable.

-49-

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. As part of this plan, we intend to seek opportunities, through our opportunity zone fund, to acquire
communities that require substantial capital investment and are located in Qualified Opportunity Zones. In addition, through our
joint venture relationship 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 will depend 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. During the year ended December 31, 2023, the Company issued and
sold 9.4 million shares of Common Stock through our Common ATM Programs at a weighted average price of $15.81 per share, generating gross
proceeds of $148.6 million and net proceeds of $145.8 million, after offering expenses.

Through
our Preferred ATM Programs, the Company issued and sold a total of 2.6 million shares of our Series D Preferred Stock generating gross
proceeds of $56.7 million and net proceeds after offering expenses of $55.7 million during the year ended December 31, 2023.

As
of December 31, 2023, $37.0 million of Common Stock remained available for sale under the 2023 Common ATM Program and $46.1 million in
shares of Series D Preferred Stock remained available for sale under the 2023 Preferred ATM Program. Subsequent to year end, the Company
issued and sold 1.2 million shares of Common Stock under the 2023 Common ATM Program for gross proceeds of $19.2 million. Subsequent
to year end, the Company issued and sold a total of 121,000 shares of Preferred Stock under the 2023 Preferred ATM Program for gross
proceeds of $2.8 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 2023, amounts received under the DRIP, including dividends reinvested of $2.7 million, totaled
$9.0 million. The Company issued a total of 612,000 shares under the DRIP during 2023.

The
Company also has the ability to finance home sales, inventory purchases and rental home purchases. The Company has a $35 million revolving
line of credit for the financing of homes that was not utilized at December 31, 2023, revolving credit facilities totaling $108.5 million
to finance inventory purchases, that were not utilized at December 31, 2023 and $55.0 million available on our lines of credit secured
by rental homes and rental homes leases.

As
of December 31, 2023, the Company had $57.3 million of cash and cash equivalents and marketable securities of $34.5 million. The
Company owned 135 communities (including two communities acquired through the opportunity zone fund) of which 48 are unencumbered.
The Company’s non-mortgaged properties and marketable securities provide us with additional liquidity. As of December 31,
2023, the Company also held a 40% equity interest in the entities formed under its joint venture with Nuveen Real Estate, which
own two newly developed communities that are unencumbered and one community in the process of being developed. 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 2023, total investment property, including rental homes, increased 11% or $147.5 million. The Company acquired one manufactured home community totaling 118 developed sites at a purchase price of $3.7 million through the Company’s opportunity zone fund. See Note 3 of
the Notes to Consolidated Financial Statements for additional information on our acquisitions and Note 7 of the Notes to
Consolidated Financial Statements for related debt transactions. 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 pursuant to its joint
venture with Nuveen Real Estate) may come from bank borrowings, proceeds from the DRIP, and private placements or public offerings
of debt, Common Stock or Preferred Stock, including under the Common ATM Program or the Preferred ATM Program. To the extent that
funds or appropriate properties are not available, fewer acquisitions will be made.

-50-

The
Company owned approximately 10,000 rental homes, or approximately 39% of our total homesites as of December 31, 2023. During 2023,
our rental home portfolio increased by 871 homes, net of rental home sales, or $93.7 million. The Company markets these rental homes
for sale to existing residents. The Company estimates that in 2024 it will order approximately 800 to 900 manufactured homes to use
as rental units at its properties for a total invoice cost of approximately $60 million to $65 million. Rental
home rates on new homes range from approximately $790 to $2,000 per month, including lot rent, depending on size, location and
market conditions. During 2023, the Company also invested approximately $30 million in other improvements to its
communities.

The
following table summarizes cash flow activity for the years ended December 31, 2023, 2022 and 2021 (in thousands):

[[GREPCENT_TABLE]]
[["","","2023","","","2022","","","2021"],["Net Cash Provided by (Used in) Operating Activities","","$","120,077","","","$","(7,227",")","","$","65,187"],["Net Cash Used in Investing Activities","","","(165,573",")","","","(124,877",")","","","(94,388",")"],["Net Cash Provided by Financing Activities","","","69,057","","","","47,954","","","","125,634"],["Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash","","$","23,561","","","$","(84,150",")","","$","96,433"]]
[[/GREPCENT_TABLE]]

Net
cash provided by (used in) operating activities increased by $127.3 million in 2023 primarily due to a decrease in inventory. Net cash
provided by (used in) operating activities decreased by $72.4 million in 2022 primarily due to an increase in inventory.

Net
cash used in investing activities increased by $40.7 million in 2023, primarily due to the purchase of investment property and equipment
and additions to land development. Net cash used in investing activities increased by $30.5 million in 2022, primarily due to the purchase
of manufactured home communities and investment property and equipment, partially offset by the proceeds from sales of marketable securities.

Net
cash provided by financing activities increased by $21.1 million in 2023 to $69.1 million. The Company issued and sold 9.4 million shares
of its Common Stock during 2023 through the Common ATM Programs, raising net proceeds of approximately $145.8 million. The Company also
received $9.0 million, including dividends reinvested, through the DRIP. In addition, the Company issued and sold 2.6 million shares
of its Series D Preferred Stock during 2023 through the Preferred ATM Programs, raising net proceeds of approximately $55.7 million.
During 2023, the Company distributed to our common shareholders a total of $51.7 million, including dividends reinvested. In addition,
the Company also paid $16.7 million in preferred dividends during 2023. The Company also made principal payments on its mortgages and
loans, net of new debt financing, totaling $73.8 million.

Net
cash provided by financing activities decreased by $77.6 million in 2022 to $48.0 million. The Company obtained new debt financing totaling $238.9 million, net of principal repayments and financing
costs, through mortgages, short-term borrowings and the issuance in Israel of
our Series A Bonds. The Company issued and sold 5.0 million shares of its Common Stock during 2022 through the Common ATM Programs, raising net proceeds
of approximately $100.8 million. The Company also received $7.8 million, including dividends reinvested, through the DRIP. In addition,
the Company issued and sold 406,000 shares of its Series D Preferred Stock during 2022 through the 2020 Preferred ATM Program, raising
net proceeds of approximately $9.1 million. During 2022, the Company redeemed all 9.9 million issued and outstanding shares of its 6.75%
Series C Preferred Stock for $247.1 million. During 2022, the Company distributed to our common shareholders a total of $43.4 million,
including dividends reinvested. In addition, the Company also paid $24.6 million in preferred dividends during 2022.

-51-

Cash
flows were primarily used for purchases of manufactured home communities, capital improvements, payment of dividends, 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 positive 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
$20 to $30 million in capital improvements for 2024.

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 10 to the Consolidated
Financial Statements.

The
Company has 2,134 acres of undeveloped land which could be developed in the future. The Company continues to analyze the best use of its
vacant land.

As
of December 31, 2023, the Company had total assets of $1.4 billion and total liabilities of $720.8 million. Our net debt (net of
cash and cash equivalents) to total market capitalization decreased 18% and as of December 31, 2023 and 2022 was approximately 31%
and 38%, respectively. Our net debt, less securities (net of cash and cash equivalents and marketable securities) to total market
capitalization decreased 17% and as of December 31, 2023 and 2022 was approximately 30% and 36%, 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 investments in entities formed under its joint venture relationship with Nuveen Real Estate which are 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 entities. The terms of the joint venture arrangements require the Company to fund 40%
and Nuveen to fund 60% of the total capital contributions made by the members. See Item 2 –
“Properties” and Note 5, “Investment 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, our operating lease obligations
and our obligations regarding the financing of our home sales. See Note 2 “Summary of Significant Accounting Policies”, Note
7 “Loans and Mortgages Payable”, Note 10 “Related Party Transactions and Other Matters” and Note 14 “Commitments,
Contingencies and Legal Matters” of the Notes to Consolidated Financial Statements for additional information.

Critical
Accounting Policies and Estimates

Our
consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. Actual results could differ
from these estimates.

For
additional information regarding our significant accounting policies, see Note 2 of the Notes to Consolidated Financial Statements.

Recent
Accounting Pronouncements

See
Note 2 of the Notes to Consolidated Financial Statements.