MANUFACTURED HOUSING PROPERTIES INC. The following management's discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following selected financial information is derived from our historical financial statements should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein and the "Special Note Regarding Forward Looking Statements" explanation included in the "Introductory Notes" above. Overview We are a self-administered, self-managed, vertically integrated owner and operator of manufactured housing communities. We earn income from (i) leasing manufactured home sites to tenantswho own their own manufactured home and (ii) leasing manufactured homes owned by us to residents of the communities.
As of
Recent Developments
Additional Closings of Regulation A Offering
Subsequent to
Country Aire Acquisition OnSeptember 21, 2022 ,MHP Pursuits LLC , our wholly owned subsidiary, entered into a purchase and sale agreement with a third-party for the purchase of a manufactured housing community located inSimpsonville, South Carolina , consisting of 107 sites all occupied by tenant-owned manufactured homes on approximately 21 acres for a total purchase price of$5,350,000 . OnDecember 9, 2022 ,MHP Pursuits LLC assigned its rights and obligations in the purchase agreement toCountry Aire MHP LLC pursuant to an assignment of purchase and sale agreement. OnJanuary 12, 2023 , closing of the purchase agreement was completed andCountry Aire MHP LLC purchased the community. 24 In connection with the closing of the property, onJanuary 12, 2023 ,Country Aire MHP LLC entered into a loan agreement withKeyBank National Association , orKeyBank , for a loan in the principal amount of$3,500,000 and issued a promissory note to the lender for the same amount. Interest on the disbursed and unpaid principal balance accrues from the date funds are first disbursed at adjusted daily simple SOFR plus a margin rate of 2.25% per annum, interest only until the initial maturity date ofSeptember 13, 2025 . A twelve-month extension of the maturity date is available which if exercised, the loan would amortize during this period.Country Aire MHP LLC may prepay the note in part or in full prior to the maturity date subject to an exit fee as defined in the loan agreement. The note is secured by a first priority security interest in the property and the note is guaranteed byManufactured Housing Properties Inc. andRaymond M. Gee . The loan agreement and note contain customary financial and other covenants and events of default for a loan of its type. Merritt Place Acquisition
OnOctober 20, 2022 ,MHP Pursuits LLC , our wholly owned subsidiary, entered into a purchase and sale agreement with a third-party for the purchase of a manufactured housing community located inBrunswick, Georgia , consisting of 40 developed sites, 14 sites to be developed by the seller, and 24 homes on approximately 17.8 acres for a total purchase price of$2,400,000 . OnJanuary 12, 2023 ,MHP Pursuits LLC assigned its rights and obligations in the purchase agreement toMerritt Place MHP LLC pursuant to an assignment of purchase and sale agreement. OnJanuary 27, 2023 , closing of the purchase agreement was completed andMerritt Place MHP LLC purchased the land, land improvements, and homes, further expanding our presence in theBrunswick market. In connection with the acquisition of the property, onJanuary 27, 2023 ,Merritt Place MHP LLC entered into a loan agreement with the seller,Merritt Place Rentals LLC , for a loan in the principal amount of$300,000 and issued a promissory note to the lender for the same amount. The note stipulates that Merritt Place will repay the note in full within 5 days of the seller-lender completing development of 14 additional sites. Interest is not charged under this note. Also in connection with the acquisition of the property, onJanuary 27, 2023 ,Merritt Place MHP LLC entered into a loan agreement withPrimeSouth Bank , for a loan in the principal amount of$1,680,000 and issued a promissory note to the lenders for the same amount.PrimeSouth Bank agreed to advance an additional$240,000 toMerritt Place MHP LLC upon the completion of the development of
the 14 additional lots. Interest on the disbursed and unpaid principal balance accrues from the date funds are first disbursed at an initial variable rate of 8.00% per annum and thereafter based on the daily Wall Street Journal Prime Rate plus a margin of 1.00%. Payments will be interest only until maturity onJanuary 27, 2024 .Merritt Place MHP LLC may prepay thePrimeSouth Bank note in part or in full subject to a penalty as defined in the loan agreement and the note is guaranteed byRaymond M. Gee . Both notes are secured by first priority security interests in the property. The loan agreement and notes contain customary financial and other covenants and events of default for real estate loans.
Impact of Coronavirus Pandemic
In
Some states and cities, including some where the Company's properties are located, reacted by instituting quarantines, restrictions on travel, "stay at home" rules and restrictions on the types of businesses that may continue to operate and is what capacity, as well as guidance in response to the pandemic and the need to contain it.
The rules and restrictions put in place have had a negative impact on the economy and business activity and may adversely impact the ability of the Company's tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due.
The extent to which the pandemic may impact the Company's results will depend on
future developments, which are highly uncertain and cannot be predicted as of
the date of this report, including new information that may emerge concerning
the severity of the pandemic and steps taken to contain the pandemic or treat
its impact, among others. Nevertheless, the pandemic and the current financial,
economic and capital markets environment present material uncertainty and risk
with respect to the Company's performance, financial condition, results of
operations and cash flows. See also Item 1A. "Risk Factors" above.
25
Results of Operations
The following table sets forth key components of our results of operations
during the years ended
Year Ended December 31, Increase (Decrease)
2022 2021 Amount Percent
Revenue
Rental and related income $ 13,994,175 $ 8,328,294 $ 5,665,881 68.03 %
Gross revenues from home sales 208,098 87,744 120,354 137.16 %
Total revenues 14,202,273 8,416,038 5,786,235 68.75 %
Community operating expenses
Repair and maintenance 1,107,449 529,899
577,550 108.99 %
Real estate taxes 783,049 463,148 319,901 69.07 %
Utilities 1,025,028 691,830 333,198 48.16 %
Insurance 326,840 125,159 201,681 161.14 %General and administrative expense 1,952,308 821,234 1,131,074 137.73 % Total community operating expenses 5,194,674 2,631,270 2,563,404 97.42 % Corporate payroll and overhead 5,053,771 3,013,810 2,039,961 67.69 % Depreciation expense 3,441,413 2,060,882
1,380,531 66.99 %
Interest expense 5,525,839 2,243,876 3,281,963 146.26 %
Refinancing costs 3,620,422 110,691 3,509,731 3,170.75 %
Cost of home sales 269,572 53,761 215,811 401.43 %
Total expenses 23,105,691 10,114,290 12,991,401 128.45 %
Other income 500 139,300 (138,800 ) (99.64 )%Gain on sale of community 102,665 - 102,665 100.00 % Net loss$ (8,800,253 ) $ (1,558,952 ) (7,241,301 ) 464.50 % Net loss attributable to non-controlling interest Variable interest entity share of net loss (952,588 ) (460,609 ) (491,979 ) 106.81 % Net loss attributable to our company (7,847,665 ) (1,098,343 ) (6,749,322 ) 614.50 % Preferred stock dividends and put option value accretion 2,160,424 2,175,472 (15,048 ) (0.69 )% Net loss attributable to common stockholders$ (10,008,089 ) $ (3,273,815 )
$ (6,734,274 ) $ 205.70 % 26
Revenues. For the year endedDecember 31, 2022 , we earned total revenues of$14,202,273 , as compared to$8,416,038 for the year endedDecember 31, 2021 , an increase of$5,786,235 , or 68.75%. The increase was primarily due to$1,415,218 of rental income from the acquisition of 13 manufactured housing communities during 2022 and a complete year of rental income related to 24 communities acquired during 2021 which exceeded revenue recognized for the same communities during 2021 by$3,678,691 . The remaining increase was due to rental rate increases. Community Operating Expenses. For the year endedDecember 31, 2022 , we incurred total community operating expenses of$5,194,674 , as compared to$2,631,270 for the year endedDecember 31, 2021 , an increase of$2,563,404 , or 97.42%. The increase in community operating expenses was primarily associated with the 37 properties acquired during 2022 and 2021, including additional repairs and maintenance, insurance, utilities, and real estate tax expenses and we hired additional on-site maintenance staff at several of our new parks to increase efficiencies and decrease contract labor costs. Community operating expenses as a percentage of revenues were 36.58% and 31.26% during 2022 and 2021, respectively. Corporate Payroll and Overhead Expenses. For the year endedDecember 31, 2022 , we incurred corporate payroll and overhead expenses of$5,053,771 , as compared to$3,013,810 for the year endedDecember 31, 2021 , an increase of$2,039,961 , or 67.69%. This increase was primarily due to payroll related expenses including additional corporate salaries and benefits expense of$1,034,997 , one-time bonuses and recruiter service fees of$119,000 related to new hires, one-time separation payments of approximately$226,000 , and an increase in stock compensation expense of$104,276 due to issuance of stock options to officers hired to support our growth. The increase in corporate overhead expenses was also due to approximately$160,000 of additional marketing and travel expenses and$191,000 of pursuit costs written off during 2022 in relation to abandoned potential acquisitions and development deals. Corporate payroll and overhead expenses as a percentage of revenue were 35.58% and 35.81% during 2022 and
2021, respectively. Depreciation Expense. For the year endedDecember 31, 2022 , we recorded depreciation expense of$3,441,413 , as compared to$2,060,882 for the year endedDecember 31, 2021 , an increase of$1,380,531 , or 66.99%. The increase in depreciation was driven by$1,246,616 related to the assets acquired in 37 manufactured housing communities during 2021 and 2022. The remaining increase was due to depreciation of capital improvement projects completed and placed into service during the year endedDecember 31, 2022 , such as home renovations and new home installations. Interest Expense. For the year endedDecember 31, 2022 , we incurred interest expense of$5,525,839 , as compared to$2,243,876 for the year endedDecember 31, 2021 , an increase of$3,281,963 , or 146.26%. The increase was primarily related to the increase in interest expense of$1,235,747 on additional debt incurred to acquire new properties in 2022 and a full year of interest related to 2021 acquisition debt,$371,139 of additional interest on related party debt, an increase in amortization of debt issuance costs of$439,758 , and an increase of$788,141 in dividends to series C preferred stockholders, which are included in interest expense given the liability treatment of the mandatorily redeemable Series C Preferred Stock. Interest expense as a percentage of revenues was 38.91% and 26.66% during 2022 and 2021, respectively. Refinancing Costs. For the year endedDecember 31, 2022 , we incurred refinancing costs of$3,620,422 , as compared to$110,691 for the year endedDecember 31, 2021 , an increase of$3,509,731 , or 3,170.75%, primarily driven by a non-recurring major portfolio refinance onSeptember 1, 2022 throughKeyBank and Fannie Mae, which refinanced most of the outstanding debt in our portfolio for a total new principal balance of$62,000,000 . We incurred refinancing expense of$3,604,672 in connection with the debt we extinguished including write-off of net unamortized debt issuance costs totaling$2,203,841 , prepayment penalties of$1,385,596 , and other fees of$15,235 . Cost of Home Sales. For the year endedDecember 31, 2022 , we received proceeds of$208,098 from the sale of 26 manufactured homes to our tenants and wrote off cost basis of$269,572 in connection with the sale of these assets. For the year endedDecember 31, 2021 , we received proceeds of$87,744 from the sale of 16 manufactured homes to our tenants and wrote off cost basis of$53,761 in connection with the sale of these assets. Other Income. During the year endedDecember 31, 2022 , we recognized other income of$500 , which represented miscellaneous non-operating fees compared to$139,300 for the year endedDecember 31, 2021 , which represented the forgiveness of our Paycheck Protection Program loan by theSmall Business Administration inJune 2021 .
Gain on Sale of Community. We sold theChambert Forest community within our Anderson portfolio consisting of 11 sites and homes during the year endedDecember 31, 2022 for gross proceeds of$250,000 and recognized a net gain on sale of$102,655 . We did not sell any of our communities during the year endedDecember 31, 2021 .
Net Loss. The factors described above resulted in a net loss of$8,800,253 for the year endedDecember 31, 2022 , as compared to a net loss of$1,558,952 for the year endedDecember 31, 2021 , an increase of$7,241,301 , or 464.50%, inclusive of$3,604,672 non-recurring refinancing costs related toKeyBank
portfolio refinance.
27
Liquidity
The consolidated financial statements have been prepared in conformity with GAAP, which contemplate continuation of our company as a going concern. We have incurred net losses each year since inception and have experienced slightly negative cash flows from operations during the year endedDecember 31, 2022 . The portfolio refinance withKeyBank drove the large net loss for the year endedDecember 31, 2022 , which is a non-recurring cost going forward. Additionally, we are in an acquisitive, growth stage whereby we have doubled the number of home sites in our portfolio of manufactured housing communities over the past two years. We acquire communities and invest in physical improvements, implement operational efficiencies to cut costs, work to improve occupancy and collections, and increase rents based on each respective market all to stabilize the acquired communities to their full potential. We increased the number of home sites in our portfolio by 27% over the twelve months endedDecember 31, 2022 , which are still stabilizing. We have incurred additional corporate payroll and overhead and interest expense in order to accomplish such growth which has driven losses and used operating cash flow. Our principal demands for cash are operating and administrative expenses, dividends on our preferred stock, debt service payments, capital expenditures to improve the properties within our portfolio, and community acquisitions. We expect to fund our operating cash requirements over the next year through a combination of cash on hand, net cash provided by our property operations, and if necessary, borrowings from our related party lines of credit available for working capital or other cash flow needs. Additionally, proceeds from theKeyBank portfolio refinance were used to pay off debt attached to a significant percentage of our Company owned manufactured homes which are now unencumbered and can be sold to generate liquidity, if needed. Our continued growth depends on the availability of suitable properties which meet our investment criteria and appropriate financing, which includes our ability to raise capital. There is no guarantee that any of these additional opportunities will materialize or that we will be able to take advantage of such opportunities. There can be no assurance that financing will be available in amounts or terms acceptable to us, if at all. Proceeds from issuance of Series C Preferred Stock and cash held in escrow with our lenders will fund our capital improvement projects and acquisitions. To the extent that funds or appropriate communities are not available, fewer acquisitions and capital improvements
will be made. Summary of Cash Flow
The following table provides detailed information about our net cash flow for
years ended
Cash Flow
Year Ended December 31,
2022 2021
Net cash provided by (used in) operating activities $ (59,793 ) $ 2,178,247
Net cash used in investing activities (10,897,267 ) (9,037,451 )
Net cash provided by financing activities 19,256,346 6,976,676
Net increase in cash, cash equivalents and restricted cash 8,299,286 117,472
Cash, cash equivalents and restricted cash at beginning of year 2,106,329 1,988,857
Cash, cash equivalents and restricted cash at end of year $ 10,405,615 $ 2,106,329
Net cash used in operating activities was $59,793 for the year ended December
31, 2022 , as compared to $2,178,247 net cash provided by operating activities
for the year ended December 31, 2021 . For the year ended December 31, 2022 , the
net loss of $8,800,253 , offset in part by non-cash depreciation expense of
$3,441,413 and amortization of debt issuance costs of $669,931 and write-off of
net unamortized debt issuance costs totaling $2,219,591 upon refinance were
primary drivers of the net cash used in operating activities. Additionally,
prepayment penalties and other fees of $1,400,831 paid to prior lenders upon
refinance of the majority of our loans that is included in net loss is added
back to net loss to present as a financing activity. For the year ended December
31, 2021 , the net loss of $1,558,952 , offset by depreciation in the amount of
$2,060,882 , increase in accrued liabilities of $747,559 , increase in tenant
security deposits of $366,043 , and increase in accounts payable of $241,869 were
the primary drivers of the net cash provided by operating activities.
28
Net cash used in investing activities was $10,897,267 for the year ended
December 31, 2022 , as compared to $9,037,451 for the year ended December 31,
2021 . Net cash used in investing activities for the year ended December 31, 2022
consisted of purchases of investment properties in the amount of $7,856,769 and
$615,823 paid for acquisition costs and advanced pursuit costs and deposits for
potential deals of $343,678 , as well as capital improvements of $2,289,095 ,
offset by proceeds from sales of homes of $208,098 . Net cash used in investing
activities for the year ended December 31, 2021 consisted of purchases of
investment properties in the amount of $6,617,000 and $481,781 paid for
acquisition costs, as well as capital improvements of $2,026,414 and proceeds
from sales of homes of $87,744 .
Net cash provided by financing activities was $19,256,346 for the year ended
December 31, 2022 , as compared to $6,976,676 for the year ended December 31,
2021 . For the year ended December 31, 2022 , net cash provided by financing
activities consisted primarily of proceeds received from refinanced notes
payable and lines of credit of $67,086,313 , proceeds from issuance of preferred
stock of $15,849,602 , proceeds from related party debt of $4,700,000 , offset by
repayment of notes payable upon refinance of $52,774,771 , repayment of VIE lines
of credit upon refinance of $3,085,607 , repayment of related party debt of
$4,350,000 , repayment of notes payable of $518,622 , repayment of VIE lines of
credit of $203,919 , payment of mortgage costs and financing costs recorded as
debt discount of $4,615,257 , payment of prepayment penalties totaling $1,400,831
to old lenders upon refinance of the majority of loans in our portfolio, and
preferred stock dividends of $976,897 . For the year ended December 31, 2021 , net
cash provided by financing activities consisted primarily of proceeds from
issuance of preferred stock of $6,821,884 , proceeds from refinanced notes
payable and lines of credit in the amount of $6,746,731 , proceeds from related
party debt of $1,650,000 , and proceeds from VIE lines of credit of $1,000,000 ,
offset by repayment of notes payable upon refinance of $4,309,272 , repayment of
VIE lines of credit upon refinance of $1,676,634 , capitalized debt issuance
costs of $1,526,376 , preferred stock dividends of $964,167 , and repayment of
notes payable of $599,896 .
Regulation A Offering
OnJune 11, 2021 , we launched a new offering under Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings, pursuant to which we are offering up to 47,000 shares of Series C Preferred Stock at an offering price of$1,000 per share for a maximum offering amount of$47 million . During the year endedDecember 31, 2022 , we sold an aggregate of 15,849.6 shares of Series C Preferred Stock for total gross proceeds of$15,849,602 . After deducting a placement fee and broker dealer commissions, we received net proceeds of$14,786,508 . In addition to the placement fee and broker dealer commissions, we capitalized an additional$91,886 of other issuance costs associated with the offering which, net of amortization expense, offset with the net proceeds on the balance sheet. During the year endedDecember 31, 2021 , we sold an aggregate of 5,734.4 shares of Series C Preferred Stock for total gross proceeds of$5,734,400 . After deducting a placement fee and broker dealer commissions, we received net proceeds of$5,345,207 . In addition to the placement fee and broker dealer commissions, we capitalized an additional$159,515 of issuance costs associated with the offering which, net of amortization expense, offset with the net proceeds on the balance sheet. Promissory Notes We have issued promissory notes payable to lenders related to the acquisition of its manufactured housing communities. The interest rates on outstanding promissory notes range from 4% to 7.39% with 5 to 30 years principal amortization. The promissory notes are secured by the real estate assets and 31 loans totaling$75,583,029 are guaranteed byRaymond M. Gee , our chairman and chief executive officer. OnSeptember 1, 2022 , we entered into 23 loan agreements withKeyBank and Fannie Mae for a total principal balance of$62,000,000 . The loan proceeds were primarily used to pay off third party notes and line of credit with various other lenders totaling approximately$54,000,000 , promissory note issued toMetrolina Loan Holdings, LLC for$1,500,000 and a revolving promissory note issued toGvest Real Estates Capital LLC for$2,000,000 .KeyBank withheld approximately$4,000,000 in escrow for planned capital projects to improve the financed communities which is included in restricted cash. We recognized refinancing expense of$3,604,672 in connection with the debt we extinguished including write-off of net unamortized debt issuance costs totaling$2,203,841 , prepayment penalties of$1,385,596 , and other fees of$15,234 . The new loans withKeyBank are interest-only at 4.87% for the first 60 months of the term with principal and interest payments continuing thereafter until maturity onSeptember 1, 2032 . We may prepay the notes in part or in full subject to prepayment penalties if repaid beforeMay 31, 2032 , and without penalty if repaid on or subsequent to that date. The loans are secured by the real estate, which predominately excludes mobile homes, and are guaranteed by our company andRaymond M. Gee . We capitalized$2,842,213 of debt issuance costs in connection with this refinancing including a$1,000,000 accrued guaranty fee owed toRaymond M. Gee to be paid at a later date. 29
As of
Interest
Only
Period
Maturity Date Interest Rate (Months) Balance 12/31/22 Balance 12/31/21
Pecan Grove MHP LLC 02/22/29 5.250 % - $ - $ 2,969,250
Pecan Grove MHP LLC - KeyBank* 09/01/32 4.870 % 60 4,489,000 - Azalea MHP LLC 03/01/29 5.400 % - 790,481 Azalea MHP LLC - KeyBank* 09/01/32 4.870 % 60 1,830,000 - Holly Faye MHP LLC 03/01/29 5.400 % - 579,825
Holly Faye MHP LLC - KeyBank* 09/01/32 4.870 % 60 1,608,000 - Chatham MHP LLC 04/01/24 5.875 % - 1,698,800 Chatham MHP LLC - KeyBank* 09/01/32 4.870 % 60 2,263,000 - Lakeview MHP LLC 03/01/29 5.400 % - 1,805,569 Lakeview MHP LLC - KeyBank* 09/01/32 4.870 % 60 3,229,000 - B&D MHP LLC 05/02/29 5.500 % - 1,779,439 B&D MHP LLC - KeyBank* 09/01/32 4.870 % 60 2,887,000 - Hunt Club MHP LLC 01/01/33 3.430 % - 2,398,689 Hunt Club MHP LLC - KeyBank* 09/01/32 4.870 % 60 2,756,000 - Crestview MHP LLC 12/31/30 3.250 % - 4,682,508 Crestview MHP LLC - KeyBank* 09/01/32 4.870 % 60 4,625,000 - Maple Hills MHP LLC 12/01/30 3.250 % - 2,341,254 Maple Hills MHP LLC - KeyBank* 09/01/32 4.870 % 60 2,570,000 - Springlake MHP LLC* 12/10/26 4.750 % 12 4,016,250 Springlake MHP LLC - KeyBank* 09/01/32 4.870 %
60 6,590,000 - ARC MHP LLC 01/01/30 5.500 % - 3,809,742 ARC MHP LLC - KeyBank* 09/01/32 4.870 % 60 3,687,000 - Countryside MHP LLC 03/20/50 5.500 % 12 1,684,100
Countryside MHP LLC - KeyBank* 09/01/32 4.870 %
60 4,343,000 - Evergreen MHP LLC 04/01/32 3.990 % - 1,115,261 Evergreen MHP LLC - KeyBank* 09/01/32 4.870 % 60 2,604,000 - Golden Isles MHP LLC 03/31/26 4.000 % - 787,500
Golden Isles MHP LLC - KeyBank* 09/01/32 4.870 %
60 1,987,000 - Anderson MHP LLC* 07/10/26 5.210 % 24 2,153,807 Anderson MHP LLC - KeyBank* 09/01/32 4.870 % 60 5,118,000 - Capital View MHP LLC* 09/10/26 5.390 % 24 817,064
Capital View MHP LLC - KeyBank* 09/01/32 4.870 % 60 829,000 - Hidden Oaks MHP LLC* 09/10/26 5.330 % 24 823,440 Hidden Oaks MHP LLC - KeyBank* 09/01/32 4.870 % 60 764,000 - North Raleigh MHP LLC 11/01/26 4.750 % - 5,304,409 North Raleigh MHP LLC - KeyBank* 09/01/32 4.870 % 60 5,279,000 -Charlotte 3Park MHP LLC (Dixie, Driftwood, Meadowbrook)(1) 03/01/22 5.000 % 2 - 1,500,000Charlotte 3Park MHP LLC (Dixie, Driftwood, Meadowbrook)(2)* 11/01/28 4.250 % - - -Charlotte 3Park MHP LLC (Dixie) - KeyBank* 09/01/32 4.870 % 60 485,000 -Charlotte 3Park MHP LLC (Driftwood) - KeyBank* 09/01/32 4.870 % 60 274,000 - Carolinas 4MHP LLC (Asheboro , Morganton)* 01/10/27 5.300 % 36 - 3,105,070 Carolinas 4MHP LLC (Asheboro ) - KeyBank* 09/01/32 4.870 % 60 1,374,000 - Carolinas 4MHP LLC (Morganton ) - KeyBank* 09/01/32 4.870 % 60 1,352,000 - Sunnyland MHP LLC(2)* 02/10/27 5.370 % 36 - - Sunnyland MHP LLC - KeyBank* 09/01/32 4.870 % 60 1,057,000 - Warrenville MHP LLC* 03/10/27 5.590 % 36 1,218,870 - Spaulding MHP LLC 07/22/43 WSJ Prime +1 % 12 1,600,000 - Solid Rock MHP LLC 06/30/32 5.000 % 12 925,000 - Red Fox MHP LLC 08/01/32 5.250 % 24 2,250,000 - Statesville MHP LLC* 09/13/25 SOFR +2.35 % 36 1,519,925 - Timberview MHP LLC* 09/13/25 SOFR +2.35 % 36 1,418,075 -Northview MHP LLC - land (Seller Finance) 09/15/27 6.000 % 60 792,654 -Statesville , Northview, andTimberview MHP LLC - homes (Seller Finance) 09/15/27 6.000 % 60 407,345 - Glynn Acres MHP LLC 11/01/42 6.000 % - 898,052 -Wake Forest MHP LLC (Cooley's, Country Road)* 12/10/27 7.390 % 36 3,038,914 - Mobile Cottage MHP LLC 12/20/27 5.000 % 30 400,000 - Gvest Finance LLC (B&D homes) 05/01/24 5.000 % - 614,809 657,357Gvest Finance LLC (Countryside homes) 03/20/50 5.500 % - - 1,287,843Gvest Finance LLC (Golden Isles homes) 03/31/31 4.000 % 120 684,220 787,500 Gvest Anderson Homes LLC* 07/10/26 5.210 % 24 - 2,006,193 Gvest Capital View Homes LLC* 09/10/26 5.390 % 24 - 342,936 Gvest Hidden Oaks Homes LLC* 09/10/26 5.330 % 24 - 416,560 Gvest Carolinas 4Homes LLC (Asheboro, Morganton)* 01/10/27 5.300 % 36 - 1,294,930 Gvest Sunnyland Homes LLC(2)* 02/10/27 5.370 % 36 - - Gvest Warrenville Homes LLC* 03/10/27 5.590 % 36 1,221,130 -Gvest Wake Forest 2Homes LLC
(Cooley's, Country Road homes)* 12/10/27 7.390 % 36 561,086 - Total Notes Payable 79,550,080 50,955,777 Discount Direct Lender Fees (3,666,214 ) (2,064,294 ) Total Net of Discount
75,883,866 48,891,483
(1) We repaid the
2022 and recognized refinancing cost expense totaling
was refinanced on
capitalized
(2) We entered into and paid off these promissory notes within the year ended
December 31, 2022 .
* The notes indicated above are subject to certain financial covenants.
30
Lines of Credit - Variable Interest Entities
Maximum Balance Balance
Maturity Interest Credit December 31, December 31,
Facility Borrower Community Date Rate Limit 2022 2021
Occupied Home ARC,
Facility(1) Crestview,
Gvest Homes I LLC Maple 01/01/30 8.375% $ 20,000,000 $ 2,424,896 $ 2,517,620
Multi-Community Rental Gvest Finance LLC ARC, Golden Greater of
Home Facility Isles, 3.25% or
Springlake Prime, + 375
Various (3) bps $ 5,000,000 $ 2,561,380 $ 838,000
Multi-Community Gvest Finance LLC Golden Isles, LIBOR + 6 -
Floorplan Home Springlake, 8% based on
Facility(1)(2) Sunnyland, days
Crestview Various (3) outstanding $ 4,000,000 $ 1,383,043 $ 1,104,255
Springlake Home Gvest Finance LLC Springlake
Facility(2) 12/10/26 6.75% $ 3,300,000 $ - $ 1,892,481 Total Lines of Credit - VIEs$ 6,369,319 $ 6,352,356 Discount Direct Lender Fees$ (160,372 ) $ (151,749 ) Total Net of Discount$ 6,208,947 $ 6,200,607
(1) During the year ended
Multi-Community Floorplan Home Facility and
Multi-Community Floorplan Home Facility to the Multi-Community Rental Home
Facility as the homes became occupied as rental units. Payments on the
Multi-Community Floorplan Home Facility advances are interest only until each
advance is paid off or transferred to the Multi-Community Rental Home
Facility.
(2) Payments on the Springlake Home Facility were interest only for the first six
months. During the first quarter of 2022,
down the same amount on the Multi-Community Floorplan Home Facility so that
all homes at Springlake were financed by one lender. On
connection with KeyBank refinancing, we repaid the outstanding balance of
this facility on behalf of Gvest Finance LLC . During the fourth quarter of
2022, Gvest Finance LLC refinanced many of the Springlake homes adding
to repay our company.
(3) The maturity date of the of the Multi-Community Floorplan and Rental Lines of
Credit will vary based on each statement of financial transaction, a report
identifying the funded homes and the applicable financial terms.
The agreements for each of the above line of credit facilities require the
maintenance of certain financial ratios or other affirmative and negative
covenants. All the above line of credit facilities are guaranteed by
OnJune 29, 2022 , we issued a revolving promissory note toNAV RE, LLC , an entity whose owners areAdam Martin , our chief investment officer, and his spouse pursuant to which we may borrow up to$2,000,000 on a revolving basis for working capital or acquisition purposes. On the same date, we borrowed$2,000,000 . As ofDecember 31, 2022 , the outstanding principal balance on this note was$2,000,000 . This note has a five-year term and is interest-only based on an 15% annual rate through the maturity date and is unsecured. During the years endedDecember 31, 2022 and 2021, interest expense totaled$154,167 and$0 , respectively. 31
Off-Balance Sheet Arrangements
As of
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our 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 our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical 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 policies are affected by our more significant judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition. Rental and related income is generated from lease agreements for our sites and homes. The lease component of these agreements is accounted for under Topic 842 of theFinancial Accounting Standards Board , or FASB, Accounting Standards Codification, or ASC, for leases. Under ASC 842, we must assess on an individual lease basis whether it is probable that we will collect the future lease payments. We consider the tenant's payment history and current credit status when assessing collectability. When collectability is not deemed probable, we will write-off the tenant's receivables, including straight-line rent receivable, and limit lease income to cash received.
Our revenues primarily consist of rental revenues and other rental related fee income. We have the following revenue sources and revenue recognition policies:
? Rental revenues include revenues from the leasing of land lot or a
combination of both, the mobile home and land at our properties to
tenants.
? Revenues from the leasing of land lot or a combination of both, the mobilehome and land at our properties to tenants include (i) lease components,
including land lot or a combination of both, the mobile home and land, and
(ii) reimbursement of utilities and account for the components as a single
lease component in accordance with ASC 842.
? Revenues derived from fixed lease payments are recognized on a
straight-line basis over the non-cancelable period of the lease. Wecommence rental revenue recognition when the underlying asset is available
for use by the lessee. Revenue derived from the reimbursement of utilities
are generally recognized in the same period as the related expenses are
incurred. The majority of our leases are month-to-month.
Revenue from sales of manufactured homes is recognized in accordance with the
core principle of ASC 606, at the time of closing when control of the home
transfers to the customer. After closing of the sale transaction, we generally
have no remaining performance obligation.
Leases. Rental revenue is generated from lease agreements with tenants for lease
of our sites and manufactured homes where we are the lessor. The terms of these
leases are generally annual or month-to-month and are renewable upon the consent
of both parties and contain no option to purchase the underlying asset.
Therefore, these leases are accounted for as operating leases in accordancewith ASC 842.
We are the lessee in a lease agreement for our corporate office space with a related party entity owned and controlled byRaymond M. Gee , our CEO and chairman. The lease term for our office is month-to-month, the lease is terminable by either party if written, thirty-day notice is given, and the lease contains no option to purchase the facility. This lease is accounted for as an operating lease. Pursuant to ASC 842-20-25-2, we as the lessee, have elected the short-term lease measurement exception whereby lease expense is recognized on a straight-line basis over the term of the lease with no right-of-use asset or lease liability recognized on the consolidated balance sheet. 32 Acquisitions. We account for acquisitions as asset acquisitions in accordance with ASC 805, "Business Combinations," and allocate the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings and improvements and rental homes. We allocate the purchase price of an acquired property generally determined by a third-party purchase price allocation report obtained in conjunction with the purchase based on appraisals. Debt Issuance Costs. Costs incurred in connection with obtaining financing are deferred and amortized on a straight-line basis over the term of the related obligation with the amortization included as a component of interest expense in the statement of operations. The unamortized balance of the debt issuance costs is presented in the consolidated balance sheet as direct reduction from the carrying amount of the debt. Upon prepayment, refinance, or substantial modification of a debt obligation, the related unamortized costs are written off to expense. Investment Property and Depreciation. Investment real property and equipment are carried at cost. Depreciation of buildings, improvements to sites and buildings, rental homes, equipment, and vehicles is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 3 to 25 years). Maintenance and repairs are charged to expense as incurred and improvements are capitalized. We use our professional judgement in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. The costs and related accumulated depreciation of property sold or otherwise disposed of are removed from the financial statement and any gain or loss is reflected in the current period's results of operations. For development and expansion projects, we capitalize direct project costs, such as construction, architectural and legal, as well as indirect project costs such as interest. Land development costs are not depreciated until they are put in use, at which time they are capitalized as land improvements. Impairment Policy. We apply FASB ASC 360-10, "Property, Plant & Equipment," to measure impairment in real estate investments. Rental properties are individually evaluated for impairment when conditions exist which may indicate that it is probable that the sum of expected future cash flows (on an undiscounted basis without interest) from a rental property is less than the carrying value under its historical net cost basis. These expected future cash flows consider factors such as future operating income, trends and prospects as well as the effects of leasing demand, competition and other factors. Upon determination that a permanent 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. There was no impairment during the years endedDecember 31, 2022
and 2021. Variable Interest Entities. InDecember 2020 , we entered into a property management agreement withGvest Finance LLC , a company owned and controlled by our parent company,Gvest Real Estate Capital LLC , an entity whose sole owner isRaymond M. Gee , our chairman and chief executive officer, and has subsequently entered into property management agreements withGvest Homes I LLC ,Gvest Anderson Homes LLC ,Gvest Capital View Homes LLC ,Gvest Hidden Oaks Homes LLC ,Gvest Springlake Homes LLC , Gvest Carolinas 4Homes LLC ,Gvest Sunnyland Homes LLC ,Gvest Warrenville Homes LLC andGvest Wake Forest 2Homes LLC , which are all wholly owned subsidiaries ofGvest Finance LLC . Under the property management agreements, the Company manages the homes owned by the VIEs and the VIEs remit to us all income, less any sums paid out for operational expenses and debt service but retain 5% of the debt service payment as a reserve. Additionally, during 2021, we formed two entities,Brainerd Place LLC andBull Creek LLC , for the purpose of exploring opportunities to develop mobile home communities. We own 49% of these entities andGvest Real Estate LLC , an entity whose sole owner isRaymond M. Gee , owns 51%. We also executed operating agreements with these entities which designateGvest Capital Management LLC , a company owned and controlled byGvest Real Estate Capital LLC , as manager with the authority, power, and discretion to manage and control the entities' business decisions. The operating agreements require us to make cash contributions to the entities to fund their activities, operations, and existence, if we approve the contribution requests from the manager. This ultimately provides our company with power to direct the economically significant activities of these entities. A company with interests in a VIE must consolidate the entity if the company is deemed to be the primary beneficiary of the VIE; that is, if it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Such a determination requires management to evaluate circumstances and relationships that may be difficult to understand and to make a significant judgment, and to repeat the evaluation at each subsequent reporting date. Primarily due to our common ownership byMr. Gee , our power to direct the activities of these entities that most significantly impact their economic performance, and the fact that we have the obligation to absorb losses or the right to receive benefits from these entities that could potentially be significant to these entities, the entities listed above are considered to be VIEs in accordance with applicable GAAP. 33
During the year endedDecember 31, 2022 , we refinanced most of our debt and used the refinance proceeds to pay off loans totaling$4,664,384 for which homes owned byGvest Anderson Homes LLC ,Gvest Capital View Homes LLC ,Gvest Hidden Oaks Homes LLC , Gvest Carolinas 4Homes LLC andGvest Sunnyland Homes LLC were collateral. Homes in these communities were transferred to our wholly owned subsidiary,MHP Home Holdings LLC , in exchange for the debt paid off on behalf of these VIE entities owned byGvest Finance LLC and intercompany debt forgiven totaling$460,226 . This change in ownership of the homes is reflected in the current period's balance sheet and the difference between the debt paid off and forgiven and the cost basis of the assets exchanged is reflected as an adjustment to additional paid in capital of$278,138 on the statement of changes in deficit which is eliminated in consolidation. Furthermore, we used refinance proceeds to pay off loans held byGvest Finance LLC andGvest Springlake Homes LLC which financed homes in the Springlake and Countryside communities. These VIE entities are in the process of obtaining replacement debt which has not been finalized of the date of this report. An intercompany loan of$2,893,981 is included in accrued liabilities and eliminated in consolidation equal to the Countryside and Springlake debt and refinance costs paid by us on the VIEs' behalf that have not yet been repaid as of the date of this report.
© Edgar Online, source
