PART
I
ITEM
1. BUSINESS.
Overview
We
are a self-administered, self-managed, vertically integrated owner and operator of manufactured housing communities. We earn income from
leasing manufactured home sites to tenants who own their own manufactured home and the rental of company-owned manufactured homes to
residents of the communities.
We
own and operate forty-three manufactured housing communities containing approximately 2,037 developed sites and 1,045 company-owned manufactured
homes. Our communities are located in Georgia, North Carolina, South Carolina and Tennessee. See Item 2. “Properties” for
a description of these manufactured housing communities.
Our
Corporate History and Structure
We
originally incorporated in the State of Nevada as Frontier Staffing, Inc. on September 3, 2003. Since our incorporation, we have experienced
several name changes and have engaged in several different business endeavors. On October 12, 2017, Mobile Home Rental Holdings LLC,
a North Carolina limited liability company, which engaged in acquiring and operating manufactured housing properties, merged with and
into our company. In connection with the merger, the name of our company was changed to Manufactured Housing Properties Inc., the former
business and management of Mobile Home Rental Holdings became the business and management, respectively, of our company at that time.
In
connection with our acquisitions of manufactured housing communities, we have established various limited liability companies and VIEs
to hold the acquired properties. Following is a summary of our subsidiaries and VIEs. All intercompany
transactions and balances have been eliminated in consolidation. We do not have a majority or minority interest in any other company,
either consolidated or unconsolidated.
Name of Subsidiary |
|
State of Formation |
|
Date of Formation |
|
Ownership |
Pecan Grove MHP LLC |
|
North Carolina |
|
October 12, 2016 |
|
100% |
Azalea MHP LLC |
|
North Carolina |
|
October 25, 2017 |
|
100% |
Holly Faye MHP LLC |
|
North Carolina |
|
October 25, 2017 |
|
100% |
Chatham Pines MHP LLC |
|
North Carolina |
|
October 31, 2017 |
|
100% |
Maple Hills MHP LLC |
|
North Carolina |
|
October 31, 2017 |
|
100% |
Lakeview MHP LLC |
|
South Carolina |
|
November 1, 2017 |
|
100% |
MHP Pursuits LLC |
|
North Carolina |
|
January 31, 2019 |
|
100% |
Mobile Home Rentals LLC |
|
North Carolina |
|
September 30, 2016 |
|
100% |
Hunt Club MHP LLC |
|
South Carolina |
|
March 8, 2019 |
|
100% |
B&D MHP LLC |
|
South Carolina |
|
April 4, 2019 |
|
100% |
Crestview MHP LLC |
|
North Carolina |
|
June 28, 2019 |
|
100% |
Springlake MHP LLC |
|
Georgia |
|
October 10, 2019 |
|
100% |
ARC MHP LLC |
|
South Carolina |
|
November 13, 2019 |
|
100% |
Countryside MHP LLC |
|
South Carolina |
|
March 12, 2020 |
|
100% |
Evergreen MHP LLC |
|
Tennessee |
|
March 17, 2020 |
|
100% |
Golden Isles MHP LLC |
|
Georgia |
|
March 16, 2021 |
|
100% |
Anderson MHP LLC |
|
South Carolina |
|
June 2, 2021 |
|
100% |
Capital View MHP LLC |
|
South Carolina |
|
August 6, 2021 |
|
100% |
Hidden Oaks MHP LLC |
|
South Carolina |
|
August 6, 2021 |
|
100% |
North Raleigh MHP LLC |
|
North Carolina |
|
September 16, 2021 |
|
100% |
Carolinas 4 MHP LLC |
|
North Carolina |
|
November 30, 2021 |
|
100% |
Charlotte 3 Park MHP LLC |
|
North Carolina |
|
December 10, 2021 |
|
100% |
Sunnyland MHP LLC* |
|
Georgia |
|
January 2, 2022 |
|
100% |
Warrenville MHP LLC* |
|
South Carolina |
|
February 15, 2022 |
|
100% |
Gvest Finance LLC |
|
North Carolina |
|
December 11, 2018 |
|
VIE |
Gvest Homes I LLC |
|
Delaware |
|
November 9, 2020 |
|
VIE |
Brainerd Place LLC |
|
Delaware |
|
February 24, 2021 |
|
VIE |
Bull Creek LLC |
|
Delaware |
|
April 13,2021 |
|
VIE |
Gvest Anderson Homes LLC |
|
Delaware |
|
June 22, 2021 |
|
VIE |
Gvest Capital View Homes LLC |
|
Delaware |
|
August 6, 2021 |
|
VIE |
Gvest Hidden Oaks Homes LLC |
|
Delaware |
|
August 6, 2021 |
|
VIE |
Gvest Springlake Homes LLC |
|
Delaware |
|
September 24, 2021 |
|
VIE |
Gvest Carolinas 4 Homes LLC |
|
Delaware |
|
November 13, 2021 |
|
VIE |
Gvest Sunnyland Homes LLC* |
|
Delaware |
|
January 6, 2022 |
|
VIE |
Gvest Warrenville Homes LLC* |
|
Delaware |
|
February 14, 2022 |
|
VIE |
* |
During the year ended December 31, 2021, there was no activity in Sunnyland MHP LLC, Warrenville MHP LLC, Gvest Sunnyland Homes LLC and Gvest Warrenville Homes LLC. |
In December 2020, we entered into a property management
agreement with Gvest Finance LLC, a company owned and controlled by our parent company, Gvest Real Estate Capital LLC, an entity whose
sole owner is Raymond M. Gee, our chairman and chief executive officer, and have subsequently entered into property management agreements
with Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks
Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, Gvest Sunnyland Homes LLC, and Gvest Warrenville Homes LLC,
which are wholly owned subsidiaries of Gvest Finance LLC. Under the property management agreements, we manage homes owned by the VIEs
and the VIEs remit to our company all income, less any sums paid out for debt service plus 5% of the debt service payment.
Additionally, during 2021, we
formed two entities, Brainerd Place LLC and Bull Creek LLC, for the purpose of exploring opportunities to develop mobile home communities.
We own 49% of these entities and Gvest Real Estate LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive
officer, owns 51%. We also executed operating agreements with these entities which designate Gvest Capital Management LLC, a company
owned and controlled by Gvest 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, which ultimately provides us with power to direct
the economically significant activities of these entities.
Pursuant to U.S. generally accepted
accounting principles, or GAAP, 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
by Mr. 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.
2021
Acquisitions
During 2021, we acquired twenty-four manufactured
housing communities via newly formed subsidiaries and VIEs consisting of 806 total sites for an aggregate purchase price of $25,975,000:
| ● | On
March 31, 2021, we purchased a manufactured housing community located in Brunswick, Georgia
consisting of 113 sites on approximately 17 acres for a total purchase price of $2,325,000.
Our subsidiary Golden Isles MHP LLC purchased the land and land improvements and our VIE,
Gvest Finance LLC, purchased the homes. |
| ● | On
July 20, 2021, we purchased ten manufactured housing communities located in Anderson County,
South Carolina consisting of 178 sites on approximately 50 acres and for a total purchase
price of $5,200,000. Our subsidiary Anderson MHP LLC purchased the land and land improvements
and Gvest Anderson Homes LLC, a wholly owned subsidiary of Gvest Finance LLC, purchased the
homes. |
| ● | On
September 10, 2021, we purchased a manufactured housing community located in Lexington County,
South Carolina consisting of 32 sites on approximately 10 acres a total purchase price of
$1,450,000. Our subsidiary Capital View MHP LLC purchased the land and land improvements
and Gvest Capital View Homes LLC, a wholly owned subsidiary of Gvest Finance LLC, purchased
the homes. |
| ● | On
September 16, 2021, we purchased a manufactured housing community located in Lexington County,
South Carolina consisting of 44 sites on approximately 9 acres for a total purchase price
of $1,550,000. Our subsidiary Hidden Oaks MHP LLC purchased the land and land improvements
and Gvest Hidden Oaks Homes LLC, a wholly owned subsidiary of Gvest Finance LLC, purchased
the homes. |
| ● | On
October 25, 2021, our subsidiary North Raleigh MHP LLC purchased five manufactured housing
communities located in Franklin and Granville Counties, North Carolina, consisting of 137
sites on approximately 135 acres for a total purchase price of $7,450,000. |
| ● | On
December 21, 2021, our subsidiary Charlotte 3 Park MHP LLC purchased three manufactured housing
communities located in Charlotte, North Carolina and nearby cities of Kings Mountain, North
Carolina and York, South Carolina consisting of 157 sites on approximately 78 acres for a
total purchase price of $2,500,000. |
| ● | On
December 29, 2021, we purchased a manufactured housing community located in Morganton, North
Carolina consisting of 61 sites on approximately 31 acres for a total purchase price of $2,750,000.
Our subsidiary Carolinas 4 MHP LLC purchased the land and land improvements and Gvest Carolinas
4 Homes LLC, a wholly owned subsidiary of Gvest Finance LLC, purchased the homes. |
| ● | On
December 29, 2021, we purchased two manufactured housing communities located in Asheboro,
North Carolina consisting of 84 sites on approximately 45 acres for a total purchase price
of $2,750,000. Carolinas 4 MHP LLC purchased the land and land improvements, and Gvest Carolinas
4 Homes LLC purchased the homes. |
The
Manufactured Housing Community Sector
Manufactured
housing communities are residential developments designed and improved for the placement of detached, single-family manufactured homes
that are produced off-site and installed on residential sites within the community. The owner of a manufactured home leases the site
on which it is located or the lessee of a manufactured home leases both the home and site on which the home is located.
We believe that manufactured housing is one of the only non-subsidized
affordable housing options in the U.S. and that manufactured housing is an economically attractive alternative to traditional single-family
and multi-family housing, as it provides a housing alternative that has characteristics of single-family housing (no shared walls, dedicated
parking and a yard), yet is more attainable than single-family while being competitively priced to multi-family. Demand for housing affordability
continues to increase, but supply of manufactured housing remains virtually static, as there are not many new manufactured housing communities
being developed, and many are redeveloped to higher and better uses. We are committed to providing this affordable housing option and
an improved level of service to our residents, while producing an attractive and stable risk adjusted return to our investors.
A
manufactured housing community is a land-lease community designed and improved with home sites for the placement of manufactured homes
and includes related improvements and amenities. Each homeowner in a manufactured housing community leases from the community a site
on which a home is located. The manufactured housing community owner owns the underlying land, utility connections, streets, lighting,
driveways, common area amenities, and other capital improvements and is responsible for enforcement of community guidelines and maintenance
of the community. Generally, each homeowner is responsible for the maintenance of his or her home and upkeep of his or her leased site.
In some cases, customers may rent homes with the community owner’s maintaining ownership and responsibility for the maintenance
and upkeep of the home. This option provides flexibility for customers seeking a more affordable housing option and enables the community
owner to meet a broader demand for housing and improve occupancy and cash flow.
We
believe that manufactured housing communities have several characteristics that make them an attractive investment when compared to certain
other types of real estate, particularly multifamily, including:
|
● |
Significant Barriers
to Entry. We believe that the supply of new manufactured housing communities will be constrained due to significant
barriers to entry in the industry, including: (i) various zoning restrictions and negative zoning biases against manufactured housing
communities; (ii) substantial upfront costs associated with the development of infrastructure, amenities and other offsite improvements
required by various governmental agencies; and (iii) a significant length of time before lease-up and revenues can commence. |
|
● |
Diminishing Supply.
Supply is decreasing due to redevelopment of older parks. |
|
● |
Large Demographic
Group of Potential Customers. We consider households earning between $25,000 and $50,000 per year to be our core customer
base. In 2020, this demographic group represented 19.7% of all full-time workers, according to the U.S. Census Bureau’s ‘Income
and Poverty in the United States: 2020’. |
|
● |
Stable Resident Base.
We believe that manufactured housing communities tend to achieve and maintain a stable rate of occupancy, due to the following
factors: (i) residents generally own their own homes; (ii) moving a manufactured home from one community to another involves substantial
cost and effort and often results in the abandonment of on-site improvements made by the resident such as decks, garages, carports,
and landscaping; and (iii) residents enjoy a sense of community inherent in manufactured housing communities similar to residential
subdivisions. |
|
● |
Fragmented Ownership
of Communities. Manufactured housing community ownership in the United States is highly fragmented, with most
manufactured housing communities owned by individuals. We estimate that the top five manufactured housing community owners
control approximately 9% of manufactured housing community home sites. |
|
● |
Low Recurring Capital
Requirements. Although manufactured housing community owners are responsible for maintaining the infrastructure
of the community, each homeowner is responsible for the upkeep of his or her own home and home site, thereby reducing the manufactured housing
community owner’s ongoing maintenance expenses and capital requirements. For the homes we own and lease to our customers, we
conduct periodic unit inspections and experience less turnover than typical multi-family rentals, both of which keep our overall
expense ratio lower than typical multi-family expense ratios. |
|
● |
Affordable Homeowner
Lifestyle. Manufactured housing communities offer a lifestyle typically unavailable in apartments, including
lack of common walls, a yard for each resident, the ability to park by the front door, and a sense of community. |
Competition
There
are numerous private companies, but only three U.S. publicly traded real estate investment trusts, or REITs, which compete in the
manufactured housing industry. Many of the private companies and one of the REITs, UMH Properties, Inc., may compete with us for
acquisitions of manufactured housing communities. Many of these companies have larger operations and greater financial resources than
we do. The number of competitors, however, is increasing as new entrants discover the benefits of the manufactured housing asset class. We
believe that due to the fragmented nature of ownership within the manufactured housing sector, there are still many attractive investment
opportunities that remain; and despite new entrants into our sector, there is still less competitions than in other commercial real estate
sectors.
Competitive
Strengths
We
believe that the following competitive strengths enable us to compete effectively:
|
● |
Deal Sourcing.
Our deal sourcing consists of marketed deals, pocket listings, and off market deals. Marketed deals are properties that are listed
with a broker who exposes the property to the largest pool of buyers possible. Pocket listings are properties that are presented
by brokers to a limited pool of buyers. Off market deals are ones that are not marketed. |
|
● |
Centralized Operations.
We have centralized many operational tasks, including accounting, marketing, lease administration, and accounts payable. The use
of professional staff and technology at a corporate level allows us to scale efficiently and operate properties profitably by reducing
tasks otherwise completed at the property level. |
|
● |
Deal Size.
Due to the relatively small size of our total capitalization, non-institutional deals of less than 150 sites are accretive to our
balance sheet. These smaller properties typically do not attract the larger institutional buyers and are at a lower basis and have
less bidders than larger properties. We can profitably operate these smaller properties through our centralized operations. |
|
● |
Creating Value.
Our underwriting expertise enables us to identify acquisition prospects to provide attractive risk adjusted returns. Our operational
team has the experience, skill and resources to create this value through physical and/or operational property improvements. |
Our
Investment Strategy
Our
primary investment strategy is acquiring both stabilized and non-stabilized manufactured housing properties with current income and enhancing
value through our internal asset and property management.
Our
investment mission on behalf of our stockholders is to deliver an attractive risk-adjusted return with a focus on value creation, capital
preservation, and growth.
We
may acquire unimproved property and develop manufactured housing sites or may acquire newly developed sites. We are focused on acquiring
or developing communities located in markets where there is a shortage of affordable housing and at a basis that provides both short
and long-term capital appreciation. We evaluate property investments nationwide, but to date we have concentrated in the Southeast portion
of the United States.
We
are one of four U.S. public companies in the manufactured housing sector, but we are the only one not organized as a REIT, thereby giving
us flexibility to focus on growth through reinvestment of income and employing higher leverage upon acquisition than REITs traditionally
use of 50-60%. Additionally, due to our small size, we can focus on smaller deals that are not accretive to institutional buyers but
where potential risk-adjusted returns are greater.
Regulation
Federal,
State and/or Local Regulatory Compliance
We
are subject to a variety of federal, state, and/or local statutes, ordinances, rules, and regulations covering the purchase, development,
and operation of real estate assets. These regulatory requirements include zoning and land use, worksite safety, traffic, and other matters,
such as local rules that may impose restrictive zoning and developmental requirements. We are subject to various licensing, registration,
and filing requirements in connection with the development and operation of certain real estate assets. Additionally, state and/or local
governments retain certain rights with respect to eminent domain which could enable them to restrict or alter the use of our property.
These requirements may lead to increases in our overall costs. The need to comply with these requirements may significantly delay development
or purchase of properties or lead us to alter our plans regarding certain real estate assets. Some requirements, on a property-by-property
evaluation, may lead to a determination that development of a particular property would not be economically feasible, even if any or
all necessary governmental approvals were obtained.
We
have all material required operating permits and approvals required for each of our communities.
Environmental
Regulatory Compliance
Under
various federal, state and/or local laws, ordinances, and regulations, a current or previous owner or operator of a property may be required
to investigate and/or clean-up hazardous or toxic substances released at that property. That owner or operator also may be held liable
to third parties for bodily injury or property damage (investigation and/or clean-up costs) incurred by those parties in connection with
the contamination at that site. These laws often impose liability without regard to whether the owner or operator knew of or otherwise
caused the release of the hazardous or toxic substances. In addition, persons who arrange for the disposal or treatment of hazardous
substances or other regulated materials also may be liable for the costs of removal or remediation of such substances at a disposal or
treatment facility, whether such facility is owned or operated by such persons.
The
costs of remediation or removal of hazardous or toxic substances can be substantial, and the presence of contamination, or the failure
to remediate contamination discovered, at a property we own or operate may adversely affect our ability to develop, sell, lease, or borrow
upon that property. Current and former tenants at a property we own may have, or may have involved, the use of hazardous materials or
generated hazardous wastes, and those situations could result in our incurring liabilities to remediate any resulting contamination if
the responsible party is unable or unwilling to do so.
In
addition, our properties may be exposed to a risk of contamination originating from other sources. While a property owner generally is
not responsible for remediating contamination that has migrated on-site from an off-site source, the contaminant’s presence could
have adverse effects on our ability to develop, construct on, operate, sell, lease, or borrow upon that property. Certain environmental
laws may create a lien on a contaminated site in favor of the government for damages and costs the government may incur to remediate
that contamination. Moreover, if contamination is discovered on a property, environmental laws may impose restrictions on the way that
property may be used, or how businesses may be operated on that property, thus reducing our ability to maximize our investment in that
property. Our properties have been subjected to varying degrees of environmental assessment at various times; however, the identification
of new areas of contamination, a change in the extent or known scope of contamination, or changes in environmental regulatory standards
and/or cleanup requirements could result in significant costs to us.
Insurance
and Property Maintenance and Improvement Policies
Our
properties are insured against risks that may cause property damage and business interruption including events such as fire, business
interruption, general liability and if applicable, flood. Our insurance policies contain deductible requirements, coverage limits and
particular exclusions. It is our policy to maintain adequate insurance coverage on all our properties; and, in the opinion of our management,
all our properties are adequately insured. We also obtain title insurance insuring fee title to the properties in an aggregate amount
which we believe to be adequate.
It
is also our policy to properly maintain, modernize, expand, and make improvements to its properties when required.
Employees
As
of December 31, 2021, we had 33 employees, including officers, all but one of whom are full-time employees.
ITEM 1A. RISK FACTORS.
An
investment in our Common Stock involves a high degree of risk. You should carefully read and consider all of the risks described below,
together with all of the other information contained or referred to in this report, before making an investment decision with respect
to our Common Stock or our company. If any of the following events occur, our financial condition, business and results of operations
(including cash flows) may be materially adversely affected. In that event, the market price of our Common Stock could decline, and you
could lose all or part of your investment.
Risks
Related to our Business and Industry
The
coronavirus pandemic may cause a material adverse effect on our business.
In
December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. On March 11, 2020, the World Health
Organization declared the outbreak a pandemic, and on March 13, 2020, the United States declared a national emergency.
Some
states and cities, including where some our properties are located, have reacted by instituting quarantines, restrictions on travel,
mask-mandates, “stay at home” rules and restrictions on the types of businesses that may continue to operate and in 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 our tenants, many of whom may be restricted in their ability to work, to pay their rent as and when due. In addition, our property
managers may be limited in their ability to properly maintain our properties. Enforcing our rights as landlord against tenants who
fail to pay rent or otherwise do not comply with the terms of their leases may not be possible as many jurisdictions, including those
where are properties are located, have established rules and/or regulations preventing us from evicting tenants for certain periods in
response to the pandemic. If we are unable to enforce our rights as landlords, our business would be materially affected.
If
the current pace of the pandemic does not continue to slow and the spread of the virus is not contained, our business operations
could be further delayed or interrupted. We expect that government and health authorities may announce new or extend existing restrictions,
which could require us to make further adjustments to our operations in order to comply with any such restrictions. The duration of any
business disruption cannot be reasonably estimated at this time but may materially affect our ability to operate our business and result
in additional costs.
The
extent to which the pandemic may impact our 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 our performance, financial condition,
results of operations and cash flows.
We
may not be able to obtain adequate cash to fund our business.
Our
business requires access to adequate cash to finance our operations, distributions, capital expenditures, debt service obligations, development
and redevelopment costs and property acquisition costs, if any. We expect to generate the cash to be used for these purposes primarily
with operating cash flow, borrowings under secured and unsecured loans, proceeds from sales of strategically identified assets and, when
market conditions permit, through the issuance of debt and equity securities from time to time. We may not be able to generate sufficient
cash to fund our business, particularly if we are unable to renew leases, lease vacant space or re-lease space as leases expire according
to our expectations.
General
economic conditions and the concentration of our properties in Georgia, North Carolina, South Carolina, and Tennessee may affect our
ability to generate sufficient revenue.
The
market and economic conditions in our current markets may significantly affect manufactured housing occupancy or rental rates. Occupancy
and rental rates, in turn, may significantly affect our revenues, and if our communities do not generate revenues sufficient to meet
our operating expenses, including debt service and capital expenditures, current cash flow and ability to pay or refinance our debt obligations
could be adversely affected. As a result of the current geographic concentration of our properties in Georgia, North Carolina, South
Carolina, and Tennessee, we are exposed to the risks of downturns in the local economy or other local real estate market conditions that
could adversely affect occupancy rates, rental rates, and property values in these markets.
Other
factors that may affect general economic conditions or local real estate conditions include:
|
● |
the national and local
economic climate which may be adversely affected by, among other factors, plant closings, and industry slowdowns; |
|
● |
local real estate market
conditions such as the oversupply of manufactured home sites or a reduction in demand for manufactured home sites in an area; |
|
● |
the number of repossessed
homes in a particular market; |
|
● |
the lack of an established
dealer network; |
|
● |
the rental market which
may limit the extent to which rents may be increased to meet increased expenses without decreasing occupancy rates; |
|
● |
the safety, convenience
and attractiveness of our properties and the neighborhoods where they are located; |
|
● |
zoning or other regulatory
restrictions; |
|
● |
competition from other
available manufactured housing communities and alternative forms of housing (such as apartment buildings and single-family homes); |
|
● |
our ability to provide
adequate management, maintenance and insurance; |
|
● |
increased operating costs,
including insurance premiums, real estate taxes and utilities; and |
|
● |
the enactment of rent control
laws or laws taxing the owners of manufactured homes. |
Our
income would also be adversely affected if tenants were unable to pay rent or if sites were unable to be rented on favorable terms. If
we were unable to promptly renew the leases for a significant number of sites, or if the rental rates upon such renewal were significantly
lower than expected rates, then our business and results of operations could be adversely affected. In addition, certain expenditures
associated with each property (such as real estate taxes and maintenance costs) generally are not reduced when circumstances cause a
reduction in income from the property.
We
face risks generally associated with our debt.
We
finance a portion of our investments in properties through debt. As of December 31, 2021, our total indebtedness for borrowed money was
$58,958,134. We are subject to the risks normally associated with debt financing, including the risk that our cash flow will be insufficient
to meet required payments of principal and interest. In addition, debt creates other risks, including:
|
● |
failure to repay or refinance
existing debt as it matures, which may result in forced disposition of assets on disadvantageous terms; |
|
● |
refinancing terms less
favorable than the terms of existing debt; and |
|
● |
failure to meet required
payments of principal and/or interest. |
We
face risks related to “balloon payments” and re-financings.
Certain
of our mortgages and lines of credit will have significant outstanding principal balances on their maturity dates, commonly known as
“balloon payments.” As of December 31, 2021, our total future minimum principal payments were $58,958,133. There can be no
assurance that we will be able to refinance the debt on favorable terms or at all. To the extent we cannot refinance debt on favorable
terms or at all, we may be forced to dispose of properties on disadvantageous terms or pay higher interest rates, either of which would
have an adverse impact on our financial performance and ability to service debt and make distributions.
We
may become more highly leveraged, resulting in increased risk of default on our obligations and an increase in debt service requirements
that could adversely affect our financial condition and results of operations and our ability to pay distributions.
We
have incurred, and may continue to incur, indebtedness in furtherance of our activities. We could become more highly leveraged, resulting
in an increased risk of default on our obligations and in an increase in debt service requirements, which could adversely affect our
financial condition and results of operations and our ability to pay distributions to stockholders.
Covenants
in our credit agreements could limit our flexibility and adversely affect our financial condition.
The
terms of our various credit agreements and other indebtedness require us to comply with a number of customary financial and other covenants,
such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. These covenants may limit our flexibility
in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness
even if we had satisfied our payment obligations. If we were to default under our credit agreements, our financial condition would be
adversely affected.
A
change in the United States government policy regarding to the Federal National Mortgage Association (Fannie Mae) and the Federal Home
Loan Mortgage Corporation (Freddie Mac) could impact our financial condition.
Fannie
Mae and Freddie Mac are a major source of financing for the manufactured housing real estate sector. We could depend on Fannie Mae and
Freddie Mac to finance growth by purchasing or guarantying manufactured housing community loans. In February 2011, the Obama Administration
released a report to Congress that included options, among others, to gradually shrink and eventually shut down Fannie Mae and Freddie
Mac. We do not know when or if Fannie Mae or Freddie Mac will restrict their support of lending to our real estate sector or to us. A
final decision by the government to eliminate Fannie Mae or Freddie Mac or reduce their acquisitions or guarantees of our mortgage loans,
may adversely affect interest rates, capital availability and our ability to refinance our existing mortgage obligations as they come
due and obtain additional long-term financing for the acquisition of additional communities on favorable terms or at all.
We
face risks relating to the property management services that we provide.
There
are inherent risks in our providing property management services to the manufactured housing communities on the properties that we own.
The more significant of these risks include:
|
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our possible liability
for personal injury or property damage suffered by our employees and third parties, including our tenants, that are not fully covered
by our insurance; |
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● |
our possible inability
to keep our manufactured housing communities at or near full occupancy; |
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● |
our possible inability
to attract and keep responsible tenants; |
|
● |
our possible inability
to expediently remove “bad” tenants from our communities; |
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● |
our possible inability
to timely and satisfactorily deal with complaints of our tenants; |
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● |
our possible inability
to locate, hire and retain qualified property management personnel; and |
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● |
our possible inability
to adequately control expenses with respect to our properties. |
We
may not be able to integrate or finance our acquisitions and our acquisitions may not perform as expected.
We
acquire and intend to continue to acquire manufactured housing communities on a select basis. Our acquisition activities and their success
are subject to the following risks:
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● |
we may be unable to acquire
a desired property because of competition from other well capitalized real estate investors, including both publicly traded REITs
and institutional investment funds; |
|
● |
even if we enter into an
acquisition agreement for a property, it is usually subject to customary conditions for closing, including completion of due diligence
investigations to our satisfaction, which may not be satisfied; |
|
● |
even if we are able to
acquire a desired property, competition from other real estate investors may significantly increase the purchase price; |
|
● |
we may be unable to finance
acquisitions on favorable terms; |
|
● |
acquired properties may
fail to perform as expected; |
|
● |
acquired properties may
be located in new markets where we face risks associated with a lack of market knowledge or understanding of the local economy, lack
of business relationships in the area and unfamiliarity with local governmental and permitting procedures; and |
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● |
we may be unable to quickly
and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations. |
If
any of the above were to occur, our business and results of operations could be adversely affected.
In
addition, we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown
liabilities. As a result, if a liability were to be asserted against us based on ownership of those properties, we might have to pay
substantial sums to settle it, which could adversely affect our cash flow.
New
acquisitions may fail to perform as expected and the intended benefits may not be realized, which could have a negative impact on our
operations.
We
intend to continue to acquire manufactured housing communities. However, newly acquired properties may fail to perform as expected and
could pose risks for our ongoing operations including the following:
|
● |
integration may prove costly
or time-consuming and may divert management’s attention from the management of daily operations; |
|
● |
difficulties or an inability
to access capital or increases in financing costs; |
|
● |
we may incur costs and
expenses associated with any undisclosed or potential liabilities; |
|
● |
unforeseen difficulties
may arise in integrating an acquisition into our portfolio; |
|
● |
expected synergies may
not materialize; and |
|
● |
we may acquire properties
in new markets where we face risks associated with lack of market knowledge such as understanding of the local economy, the local
governmental and/or local permit procedures. |
As
a result of the foregoing, we may not accurately estimate or identify all costs necessary to bring an acquired manufactured housing communities
up to standards established for our intended market position. As such, we cannot provide assurance that any acquisition that we make
will be accretive to us in the near term or at all. Furthermore, if we fail to realize the intended benefits of an acquisition, it may
have a negative impact on our operations.
Development
and expansion properties may fail to perform as expected and the intended benefits may not be realized, which could have a negative impact
on our operations.
We
may periodically consider development and expansion activities, which are subject to risks such as construction costs exceeding original
estimates and construction and lease-up delays resulting in increased construction costs and lower than expected revenues. Additionally,
there can be no assurance that these properties will operate better as a result of development or expansion activities due to various
factors, including lower than anticipated occupancy and rental rates causing a property to be unprofitable or less profitable than originally
estimated.
We
regularly expend capital to maintain, repair and renovate our properties, which could negatively impact our financial condition and results
of operations.
We
may, or we may be required to, from time to time make significant capital expenditures to maintain or enhance the competitiveness of
our manufactured housing communities. There can be no assurances that any such expenditures would result in higher occupancy or higher
rental rates.
We
may be unable to sell properties when appropriate because real estate investments are illiquid.
Real
estate investments generally cannot be sold quickly and, therefore, will tend to limit our ability to vary our property portfolio promptly
in response to changes in economic or other conditions. The inability to respond promptly to changes in the performance of our property
portfolio could adversely affect our financial condition and ability to service our debt and make distributions to our stockholders.
We
may be unable to compete with our larger competitors, which may in turn adversely affect our profitability.
The
real estate business is highly competitive. We compete for manufactured housing community investments with numerous other real estate
entities, such as individuals, corporations, REITs, and other enterprises engaged in real estate activities. In many cases, the competing
concerns may be larger and better financed than we are, making it difficult for us to secure new manufactured housing community investments.
Competition among private and institutional purchasers of manufactured housing community investments has led to increases in the purchase
prices paid for manufactured housing communities and consequent higher fixed costs. To the extent we are unable to effectively compete
in the marketplace, our business may be adversely affected.
Actions
by our competitors may decrease or prevent increases in the occupancy and rental rates of our properties which could adversely affect
our business.
We
compete with other owners and operators of manufactured housing community properties, some of whom own properties similar to ours in
the same submarkets in which our properties are located. The number of competitive manufactured housing community properties in a particular
area could have a material adverse effect on our ability to lease sites and increase rents charged at our properties or at any newly
acquired properties. In addition, other forms of multi-family residential properties, such as private and federally funded or assisted
multi-family housing projects and single-family housing, provide housing alternatives to potential tenants of manufactured housing communities.
If our competitors offer housing at rental rates below current market rates or below the rental rates we currently charge our tenants,
we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge in order to retain
tenants when our tenants’ leases expire. As a result, our financial condition, cash flow, cash available for distribution, and
ability to satisfy our debt service obligations could be materially adversely affected.
Losses
in excess of our insurance coverage or uninsured losses could adversely affect our cash flow.
We
generally maintain insurance policies related to our business, including casualty, general liability and other policies covering business
operations, employees and assets. However, we may be required to bear all losses that are not adequately covered by insurance. In addition,
there are certain losses that are not generally insured because it is not economically feasible to insure against them, including losses
due to riots or acts of war. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties,
then we could lose the capital we invested in the properties, as well as the anticipated profits and cash flow from the properties and,
in the case of debt that carries recourse to us, we would remain obligated for any mortgage debt or other financial obligations related
to the properties. Although we believe that our insurance programs are adequate, no assurance can be given that we will not incur losses
in excess of its insurance coverage, or that we will be able to obtain insurance in the future at acceptable levels and reasonable cost.
Costs
associated with taxes and regulatory compliance may reduce our revenue.
We
are subject to significant regulation that inhibits our activities and may increase our costs. Local zoning and use laws, environmental
statutes and other governmental requirements may restrict expansion, rehabilitation and reconstruction activities. These regulations
may prevent us from taking advantage of economic opportunities. Legislation such as the Americans with Disabilities Act may require us
to modify our properties at a substantial cost and noncompliance could result in the imposition of fines or an award of damages to private
litigants. Future legislation may impose additional requirements. We cannot predict what requirements may be enacted or amended or what
costs we will incur to comply with such requirements. Costs resulting from changes in real estate laws, income taxes, service or other
taxes may adversely affect our funds from operations and our ability to pay or refinance our debt. Similarly, changes in laws increasing
the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions
may result in significant unanticipated expenditures, which would adversely affect our business and results of operations.
Rent
control legislation may harm our ability to increase rents.
State
and local rent control laws in certain jurisdictions may limit our ability to increase rents and to recover increases in operating expenses
and the costs of capital improvements. We may purchase additional properties in markets that are either subject to rent control or in
which rent-limiting legislation exists or may be enacted.
Environmental
liabilities could affect our profitability.
Under
various federal, state and local laws, as well as local ordinances and regulations, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous substances at, on, under or in such property, as well as certain other potential
costs relating to hazardous or toxic substances. Such laws often impose such liability without regard to whether the owner knew of, or
was responsible for, the presence of such hazardous substances. A conveyance of the property, therefore, does not relieve the owner or
operator from liability. As a current or former owner and operator of real estate, we may be required by law to investigate and clean
up hazardous substances released at or from the properties we currently own or operate or have in the past owned or operated. We may
also be liable to the government or to third parties for property damage, investigation costs and cleanup costs. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for damages and costs the government incurs in connection with
the contamination. Contamination may adversely affect our ability to sell or lease real estate or to borrow using the real estate as
collateral. Persons who arrange for the disposal or treatment of hazardous substances also may be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility owned or operated by another person. In addition, certain environmental
laws impose liability for the management and disposal of asbestos-containing materials and for the release of such materials into the
air. These laws may provide for third parties to seek recovery from owners or operators of real properties for personal injury associated
with asbestos-containing materials. In connection with the ownership, operation, management, and development of real properties, we may
be considered an owner or operator of such properties and, therefore, are potentially liable for removal or remediation costs, and also
may be liable for governmental fines and injuries to persons and property. When we arrange for the treatment or disposal of hazardous
substances at landfills or other facilities owned by other persons, we may be liable for the removal or remediation costs at such facilities.
We are not aware of any environmental liabilities relating to our investment properties that would have a material adverse effect on
our business, assets, or results of operations. However, we cannot assure you that environmental liabilities will not arise in the future
and that such liabilities will not have a material adverse effect on our business, assets or results of operation.
Of
the forty-three manufactured housing communities we currently operate, twelve are on well systems and twenty-five are on septic systems.
At these locations, we are subject to compliance with monthly, quarterly and yearly testing for contaminants as outlined by each state’s
Department of Environmental Protection Agencies. Currently, we are not subject to radon or asbestos monitoring requirements.
Additionally,
in connection with the management of the properties or upon acquisition or financing of a property, we authorize the preparation of Phase
I or similar environmental reports (which involves general inspections without soil sampling or ground water analysis) completed by independent
environmental consultants. Based on such environmental reports and our ongoing review of its properties, as of the date of this report,
we are not aware of any environmental condition with respect to any of our properties that we believe would be reasonably likely to have
a material adverse effect on our financial condition or results of operations. These reports, however, cannot reflect conditions arising
after the studies were completed, and no assurances can be given that existing environmental studies reveal all environmental liabilities,
that any prior owner or operator of a property or neighboring owner or operator did not create any material environmental condition not
known to us, or that a material environmental condition does not otherwise exist with respect to any one property or more than one property.
Our failure or the failure of third-party
service providers to protect our sites, networks and systems against security breaches, or otherwise to protect our confidential information,
could damage our reputation and brand and substantially harm our business and operating results.
We collect, maintain, transmit and store data
about our tenants, employees, contractors, suppliers, vendors and others, including credit card information and personally identifiable
information, as well as other confidential and proprietary information. We also employ third-party service providers that store, process
and transmit certain proprietary, personal and confidential information on our behalf. We rely on encryption and authentication technology
licensed from third parties in an effort to securely transmit, encrypt, anonymize or pseudonymize certain confidential and sensitive information,
including credit card numbers. Advances in computer capabilities, new technological discoveries or other developments may result in the
whole or partial failure of this technology to protect transaction and personal data or other confidential and sensitive information from
being breached or compromised. Our security measures, and those of our third-party service providers, may not detect or prevent all attempts
to hack our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, ransom-ware, social engineering,
security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by
our sites, networks and systems or that we or our third-party service providers otherwise maintain, including payment card systems and
human resources management platforms. We and our service providers may not anticipate, discover or prevent all types of attacks until
after they have already been launched, and techniques used to obtain unauthorized access to or sabotage systems change frequently and
may not be known until launched against us or our third-party service providers. In addition, security breaches can also occur as a result
of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships.
Breaches of our security measures or those of our third-party service
providers or cyber security incidents could result in unauthorized access to our sites, networks and systems; unauthorized access to and
misappropriation of personal information, including tenants’ and employees’ personally identifiable information, or other
confidential or proprietary information of ourselves or third parties; limited or terminated access to certain payment methods or fines
or higher transaction fees to use such methods; viruses, worms, spyware or other malware being served from our sites, networks or systems;
deletion or modification of content or the display of unauthorized content on our sites; interruption, disruption or malfunction of operations;
costs relating to breach remediation, deployment or training of additional personnel and protection technologies, responses to governmental
investigations and media inquiries and coverage; engagement of third-party experts and consultants; litigation, regulatory action and
other potential liabilities. If any of these breaches of security occur, our reputation and brand could be damaged, our business may suffer,
we could be required to expend significant capital and other resources to alleviate problems caused by such breaches and we could be exposed
to a risk of loss, litigation or regulatory action and possible liability. In addition, any party who is able to illicitly obtain a tenant’s
password could access that tenant’s personal information. Any compromise or breach of our security measures, or those of our third-party
service providers, could violate applicable privacy, data security and other laws, and cause significant legal and financial exposure,
adverse publicity and a loss of confidence in our security measures, which could have a material adverse effect on our business.
We
are subject to risks arising from litigation.
We
may become involved in litigation. Litigation can be costly, and the results of litigation are often difficult to predict. We may not
have adequate insurance coverage or contractual protection to cover costs and liability in the event we are sued, and to the extent we
resort to litigation to enforce our rights, we may incur significant costs and ultimately be unsuccessful or unable to recover amounts
we believe are owed to us. We may have little or no control of the timing of litigation, which presents challenges to our strategic planning.
We
are dependent on key personnel.
Our
executive and other senior officers have a significant role in our success. Our ability to retain our management group or to attract
suitable replacements should any members of the management group leave depends on the competitive nature of the employment market. The
loss of services from key members of the management group or a limitation in their availability could adversely affect our financial
condition and cash flow. Further, such a loss could be negatively perceived in the capital markets.
Our
management is inexperienced in running a public entity.
Except
for Michael Z. Anise, our president, chief financial officer and a director, our management does not have prior experience with the operation
and management of a public entity. As a result, they will be learning as they proceed and may be forced to rely more heavily on the expertise
of outside professionals than they might otherwise, which in turn could lead to higher legal and accounting costs and possible securities
law compliance issues.
We
have one stockholder that can single-handedly control our company.
Our
largest stockholder is Gvest Real Estate Capital LLC, an entity whose sole owner is Raymond M. Gee, our chairman and chief executive
officer. At present, Mr. Gee beneficially owns approximately 68.69% of our total issued and outstanding Common Stock. Under Nevada law,
this ownership position provides Mr. Gee with the almost unrestricted ability to control the business, management and strategic direction
of our company. If Mr. Gee chooses to exercise this control, his decisions regarding our company could be detrimental to, or not in the
best interests of our company and its other stockholders.
We
have identified material weaknesses in our internal control over financial reporting. If we fail to develop or maintain an effective
system of internal controls, we may not be able to accurately report our financial results and prevent fraud. As a result, current and
potential stockholders could lose confidence in our financial statements, which would harm the trading price of our Common Stock.
Companies
that file reports with the Securities and Exchange Commission, or the SEC, including us, are subject to the requirements of Section 404
of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management to establish and maintain a system of internal control over
financial reporting and annual reports on Form 10-K filed under the Exchange Act to contain a report from management assessing the effectiveness
of a company’s internal control over financial reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010, public companies that are large accelerated filers or accelerated filers must include in their annual
reports on Form 10-K an attestation report of their regular auditors attesting to and reporting on management’s assessment of internal
control over financial reporting. Non-accelerated filers and smaller reporting companies, like us, are not required to include an attestation
report of their auditors in annual reports.
A
report of our management is included under Item 9A. “Controls and Procedures.” We are a smaller reporting company and, consequently,
are not required to include an attestation report of our auditor in our annual report. However, if and when we become subject to the
auditor attestation requirements under SOX 404, we can provide no assurance that we will receive a positive attestation from our independent
auditors.
During
its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2021, management identified material
weaknesses. These material weaknesses were associated with (i) our lack of proper segregation of duties due to the limited number of
employees within the accounting department and (ii) our lack of effective closing procedures. We are undertaking remedial measures, which
measures will take time to implement and test, to address these material weaknesses. There can be no assurance that such measures will
be sufficient to remedy the material weaknesses identified or that additional material weaknesses or other control or significant deficiencies
will not be identified in the future. If we continue to experience material weaknesses in our internal controls or fail to maintain or
implement required new or improved controls, such circumstances could cause us to fail to meet our periodic reporting obligations or
result in material misstatements in our financial statements, or adversely affect the results of periodic management evaluations and,
if required, annual auditor attestation reports. Each of the foregoing results could cause investors to lose confidence in our reported
financial information and lead to a decline in our stock price.
Risks
Related Ownership of Our Common Stock
Our
Common Stock is eligible for quotation on the Pink Market but few quotations have been made and limited trading has occurred in our Common
Stock. Due to the lack of an active trading market for our securities, you may have difficulty selling any shares you purchase, which
could result in the loss of your investment.
Our
Common Stock is eligible for quotation on the Pink Market operated by OTC Markets Group Inc. The Pink Market is a regulated quotation
service that displays real-time quotes, last sale prices and volume information in over-the-counter securities. The Pink Market is not
an issuer listing service, market or exchange. The requirements for quotation on the Pink Market are considerably lower and less regulated
than those of an exchange. Because of this, it is possible that fewer brokers or dealers will be interested in making a market in our
Common Stock because the market for such securities is more limited, the stocks are more volatile, and the risk to investors is greater,
which may impact the liquidity of our Common Stock. Even if an active market begins to develop in our Common Stock, the quotation of
our Common Stock on the Pink Market may result in a less liquid market available for existing and potential stockholders to trade Common
Stock, could depress the trading price of our Common Stock and could have a long-term adverse impact on our ability to raise capital
in the future. If an active market is never developed for our Common Stock, it will be difficult or impossible for you to sell any Common
Stock you purchase.
We
cannot predict the extent to which an active public trading market for our Common Stock will develop or be sustained. If an active public
trading market does not develop or cannot be sustained, you may be unable to liquidate your investment in our Common Stock.
At
present, there is minimal public trading in our Common Stock. We cannot predict the extent to which an active public market for our Common
Stock will develop or be sustained due to a number of factors, including the fact that we are a small company that is relatively unknown
to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume,
and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company
such as ours or purchase or recommend the purchase of our shares of Common Stock until such time as we became more seasoned and viable.
Consequently, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared
to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an
adverse effect on stock price. We cannot give you any assurance that an active public trading market for our Common Stock will develop
or be sustained. If such a market cannot be sustained, you may be unable to liquidate your investment in our Common Stock.
Our
Common Stock may be subject to significant price volatility which may have an adverse effect on your ability to liquidate your investment
in our Common Stock.
The
market for our Common Stock may be characterized by significant price volatility when compared to seasoned issuers, and we expect that
our stock price will be more volatile than a seasoned issuer for the indefinite future. The potential volatility in our stock price is
attributable to a number of factors. First, our shares of Common Stock may be sporadically and/or thinly traded. As a consequence of
this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the
price of those shares in either direction. The price for our shares could, for example, decline precipitously if a large number of our
shares of Common Stock are sold on the market without commensurate demand, as compared to a seasoned issuer that could better absorb
those sales without adverse impact on its stock price. Secondly, an investment in us is a speculative or “risky” investment
due to our lack of meaningful profits to date and uncertainty of future profits. As a consequence of this enhanced risk, more risk-adverse
investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined
to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer.
We
may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our Common Stock.
The
SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price
less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our Common Stock is a “penny
stock” and is subject to Rule 15g-9 under the Exchange Act. This rule imposes additional sales practice requirements on broker-dealers
that sell such securities to persons other than established customers and “accredited investors” (generally, individuals
with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions
covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s
written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities
and may affect the ability of purchasers to sell any of our securities in the secondary market, thus possibly making it more difficult
for us to raise additional capital.
For
any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure
schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable
to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market
in penny stock.
There
can be no assurance that our Common stock will qualify for exemption from this rule. In any event, even if our Common Stock were exempt
from this rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person
from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.
We
have never paid cash dividends on our Common Stock and do not intend to pay dividends for the foreseeable future.
We
have paid no cash dividends on our Common Stock to date, and we do not anticipate paying cash dividends on our Common Stock in the near
term. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do
not anticipate paying any cash dividends on our Common Stock. Accordingly, investors must be prepared to rely on sales of their Common
Stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase
our Common Stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will
depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other
factors our board deems relevant.
Our
Preferred Stock have liquidation preferences senior to our Common Stock.
Our
Series A Cumulative Convertible Preferred Stock, which we refer to as our Series A Preferred Stock, Series B Cumulative Redeemable Preferred
Stock, which we refer to as our Series B Preferred Stock, and Series C Cumulative Redeemable Preferred Stock, which we refer to as our
Series C Preferred Stock, have liquidation preferences that get paid prior to any payment on our Common Stock. As a result, if we were
to dissolve, liquidate, merge with another company or sell our assets, the holders of our Series A Preferred Stock, Series B Preferred
Stock, and Series C Preferred Stock would have the right to receive up to approximately $24,185,165 as of December 31, 2021, plus any
unpaid dividends, before any amount is paid to the holders of our Common Stock. The payment of the liquidation preferences could result
in common stockholders not receiving any consideration if we were to liquidate, dissolve or wind up, either voluntarily or involuntarily.
The existence of the liquidation preferences may also reduce the value of our Common Stock, make it harder for us to sell shares of Common
Stock in offerings in the future, or prevent or delay a change of control.
We
may issue additional debt and equity securities that are senior to our Common Stock as to distributions and in liquidation, which could
materially adversely affect the value of the Common Stock.
In
the future, we may attempt to increase our capital resources by entering into additional debt or debt-like financing that is secured
by all or up to all of our assets, or issuing debt or equity securities, which could include issuances of commercial paper, medium-term
notes, senior notes, subordinated notes or shares. In the event of our liquidation, our lenders and holders of our debt securities would
receive a distribution of our available assets before distributions to our stockholders. Any additional preferred securities, if issued
by our company, may have a preference with respect to distributions and upon liquidation that is senior to the preference of our Common
Stock, which could further limit our ability to make distributions to our stockholders. Because our decision to incur debt and issue
securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate
the amount, timing or nature of our future offerings and debt financing.
Further,
market conditions could require us to accept less favorable terms for the issuance of our securities in the future. Thus, you will bear
the risk of our future offerings reducing the value of your Common Stock. In addition, we can change our leverage strategy from time
to time without approval of holders of our Common Stock, which could materially adversely affect the value of our Common Stock.
Our
articles of incorporation, bylaws and Nevada law have anti-takeover provisions that could discourage, delay or prevent a change in control,
which may cause our stock price to decline.
Our
articles of incorporation, bylaws and Nevada law contain provisions which could make it more difficult for a third party to acquire us,
even if closing such a transaction would be beneficial to our stockholders. We are currently authorized to issue up to 5,000,000 shares
of “blank check” Preferred Stock. This Preferred Stock may be issued in one or more series, the terms of which may be determined
at the time of issuance by our board of directors without further action by stockholders. The terms of any series of Preferred Stock
may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion
and redemption rights and sinking fund provisions. The issuance of any Preferred Stock could materially adversely affect the rights of
the holders of our Common Stock, and therefore, reduce the value of our Common Stock. For example, specific rights granted to future
holders of Preferred Stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve
control by current management.
Provisions
of our articles of incorporation, bylaws and Nevada law also could have the effect of discouraging potential acquisition proposals or
making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions
may also prevent or frustrate attempts by our stockholders to replace or remove our management. Specifically, our articles of incorporation,
bylaws and Nevada law, among other things, provide our board of directors with the ability to alter our bylaws without stockholder approval,
and provide that vacancies on our board of directors may be filled by a majority of directors in office, although less than a quorum.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not
applicable.
ITEM 2. PROPERTIES.
As
of December 31, 2021, we owned the following manufactured housing properties.
|
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Pecan Grove
– a 82 lot, all-age community situated on 10.71 acres and located in Charlotte, North Carolina. The average occupancy was 100%. |
|
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Azalea Hills
– a 41 lot, all-age community situated on 7.46 acres and located in Gastonia, North Carolina, a suburb of Charlotte, North
Carolina. The average occupancy was 97%. |
|
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Holly Faye
– a 35 lot all-age community situated on 8.01 acres and located in Gastonia, North Carolina, a suburb of Charlotte North Carolina.
The average occupancy was 99%. |
|
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Lakeview –
a 84 lot all-age community situated on 17.26 acres in Spartanburg, South Carolina. The average occupancy was 97%. |
|
● |
Chatham Pines
– a 49 lot all-age community situated on 23.57 acres and located in Chapel Hill, North Carolina. The average occupancy was
100%. |
|
● |
Maple Hills
– a 74 lot all-age community situated on 21.20 acres and located in Mills River, North Carolina, which is part of the Asheville,
North Carolina, Metropolitan Statistical Area. The average occupancy was 93% |
|
● |
Hunt Club Forest
– a 79 lot all-age community situated on 13.02 acres and located in the Columbia, South Carolina metro area. The average
occupancy was 99%. |
|
|
|
|
● |
B&D
– a 95 lot all-age community situated on 17.75 acres and located in Chester, South Carolina. The average occupancy
was 89%. |
|
|
|
|
● |
Crestview
– a 113 lot all age community situated on 17.1 acres and located in the Asheville, North Carolina, Metropolitan Statistical
Area. The average occupancy was 95%. |
|
|
|
|
● |
Springlake
– three all-age communities with 224 lots situated on 72.7 acres and located in Warner Robins, Georgia. The average
occupancy was 88%. |
|
|
|
|
● |
ARC
– five all-age communities with 180 lots situated on 39.34 acres and located in Lexington, South Carolina. The average
occupancy was 88%. |
|
|
|
|
● |
Countryside
– a 110 lot all-age community situated on 35 acres and located in Lancaster, North Carolina. The average occupancy
was 90%. |
|
● |
Evergreen
– a 65 lot all-age community situated on 28.4 acres and located in Dandridge, Tennessee. The average occupancy was
97% |
|
|
|
|
● |
Golden
Isles – a 113 lots all-age community situated on 16.76 acres and located in Brunswick, Georgia. The average occupancy
was 75%. |
|
|
|
|
● |
Anderson
– ten all-age communities with 178 lots situated on 50 acres and located in Anderson, South Carolina. The average occupancy
was 95%. |
|
|
|
|
● |
Capital
View – a 32 lot all-age community situated on 9.84 acres and located in Gaston, South Carolina. The average occupancy
was 97%. |
|
|
|
|
● |
Hidden
Oaks - a 44 lot all-age community situated on 8.96 acres and located in West Columbia, South Carolina. The average
occupancy was 93%. |
|
|
|
|
● |
North
Raleigh – five all-age communities with 137 lots situated on 135 acres and located in Franklin and Granville Counties,
North Carolina. The average occupancy was 93%. |
|
|
|
|
● |
Dixie
– a 37 lot all-age community situated on 3.43 acres and located in Kings Mountain, North Carolina. The average occupancy
was 91%. |
|
|
|
|
● |
Driftwood
– a 26 lot all-age community situated on 34.92 acres and located in Charlotte, North Carolina. The average occupancy
was 88%. |
|
|
|
|
● |
Meadowbrook
– a 94 lot all-age community situated on 40.1 acres and located in York, South Carolina. The average occupancy was
100%. |
|
|
|
|
● |
Morganton
– a 61 lot all-age community situated on 31.29 acres and located in Morganton, North Carolina. The average occupancy
was 100%. |
|
|
|
|
● |
Asheboro
– a 84 lot all-age community situated on 45.4 acres and located in Asheboro, North Carolina. The average occupancy
was 95%. |
The
average occupancy rates above represent an average of total monthly occupancy rates from January 1, 2021 (or date of acquisition) through
December 31, 2021. For the year ended December 31, 2021, our total portfolio weighted average occupancy rate was 93%. We do not include
vacant, undeveloped lots in our average occupancy rate calculations above.
ITEM 3. LEGAL PROCEEDINGS.
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may
harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect
on our business, financial condition or operating results.
ITEM 4. MINE SAFETY DISCLOSURES.
Not
applicable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND ORGANIZATION
Organization
Manufactured Housing Properties Inc. (the “Company”)
is a Nevada corporation whose principal activities are to acquire, own, and operate manufactured housing communities.
Basis of Presentation
The Company prepares its consolidated financial
statements under the accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of
America (“GAAP”).
Principles of Consolidation
The consolidated financial statements include
the accounts of the Company, entities controlled by the Company through its direct or indirect ownership of a majority interest and any
other entities in which the Company has a controlling financial interest. The Company consolidates variable interest entities (“VIEs”)
where the Company is the primary beneficiary. The primary beneficiary of a VIE is the party that has both the power to direct the activities
that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits
that could potentially be significant to the VIE.
The Company’s formation of all subsidiaries
and VIE’s date of consolidation are as follows:
Name of Subsidiary |
|
State of Formation |
|
Date of Formation |
|
Ownership |
Pecan Grove MHP LLC |
|
North Carolina |
|
October 12, 2016 |
|
100% |
Azalea MHP LLC |
|
North Carolina |
|
October 25, 2017 |
|
100% |
Holly Faye MHP LLC |
|
North Carolina |
|
October 25, 2017 |
|
100% |
Chatham Pines MHP LLC |
|
North Carolina |
|
October 31, 2017 |
|
100% |
Maple Hills MHP LLC |
|
North Carolina |
|
October 31, 2017 |
|
100% |
Lakeview MHP LLC |
|
South Carolina |
|
November 1, 2017 |
|
100% |
MHP Pursuits LLC |
|
North Carolina |
|
January 31, 2019 |
|
100% |
Mobile Home Rentals LLC |
|
North Carolina |
|
September 30, 2016 |
|
100% |
Hunt Club MHP LLC |
|
South Carolina |
|
March 8, 2019 |
|
100% |
B&D MHP LLC |
|
South Carolina |
|
April 4, 2019 |
|
100% |
Crestview MHP LLC |
|
North Carolina |
|
June 28, 2019 |
|
100% |
Springlake MHP LLC |
|
Georgia |
|
October 10, 2019 |
|
100% |
ARC MHP LLC |
|
South Carolina |
|
November 13, 2019 |
|
100% |
Countryside MHP LLC |
|
South Carolina |
|
March 12, 2020 |
|
100% |
Evergreen MHP LLC |
|
Tennessee |
|
March 17, 2020 |
|
100% |
Golden Isles MHP LLC |
|
Georgia |
|
March 16, 2021 |
|
100% |
Anderson MHP LLC |
|
South Carolina |
|
June 2, 2021 |
|
100% |
Capital View MHP LLC |
|
South Carolina |
|
August 6, 2021 |
|
100% |
Hidden Oaks MHP LLC |
|
South Carolina |
|
August 6, 2021 |
|
100% |
North Raleigh MHP LLC |
|
North Carolina |
|
September 16, 2021 |
|
100% |
Carolinas 4 MHP LLC |
|
North Carolina |
|
November 30, 2021 |
|
100% |
Charlotte 3 Park MHP LLC |
|
North Carolina |
|
December 10, 2021 |
|
100% |
Gvest Finance LLC |
|
North Carolina |
|
December 11, 2018 |
|
VIE |
Gvest Homes I LLC |
|
Delaware |
|
November 9, 2020 |
|
VIE |
Brainerd Place LLC |
|
Delaware |
|
February 24, 2021 |
|
VIE |
Bull Creek LLC |
|
Delaware |
|
April 13,2021 |
|
VIE |
Gvest Anderson Homes LLC |
|
Delaware |
|
June 22, 2021 |
|
VIE |
Gvest Capital View Homes LLC |
|
Delaware |
|
August 6, 2021 |
|
VIE |
Gvest Hidden Oaks Homes LLC |
|
Delaware |
|
August 6, 2021 |
|
VIE |
Gvest Springlake Homes LLC |
|
Delaware |
|
September 24, 2021 |
|
VIE |
Gvest Carolinas 4 Homes LLC |
|
Delaware |
|
November 13, 2021 |
|
VIE |
All intercompany
transactions and balances have been eliminated in consolidation. The Company does not have a majority or minority interest in any other
company, either consolidated or unconsolidated.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Revenue Recognition
Mobile home 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 the Financial
Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, for leases.
Under ASC 842, the Company must assess on an individual
lease basis whether it is probable that we will collect the future lease payments. The Company considers the tenant’s payment history
and current credit status when assessing collectability. When collectability is not deemed probable, the Company will write-off the tenant’s
receivables, including straight-line rent receivable, and limit lease income to cash received.
The Company’s revenues primarily consist
of rental revenues and fee and other income. The Company has 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 mobile home and land at the Company’s 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. The Company commences 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 Company’s leases are month-to-month. |
Accounts Receivable
Accounts receivable consist primarily of amounts
currently due from residents. Accounts receivables are reported in the balance sheet at outstanding principal adjusted for any charge-offs
and the allowance for losses. The Company records an allowance for bad debt when receivables are over 90 days old.
Acquisitions
The Company accounts for acquisitions as asset
acquisitions in accordance with ASC 805, “Business Combinations,” and allocates the purchase price of the property based upon
the fair value of the assets acquired, which generally consist of land, site and land improvements, buildings and improvements and rental
homes. The Company allocates the purchase price of an acquired property generally determined by internal evaluation as well as third-party
appraisal of the property obtained in conjunction with the purchase.
Variable Interest Entities
In December 2020, the Company entered into a property
management agreement with Gvest Finance LLC, a company owned and controlled by the Company’s parent company, Gvest Real Estate Capital
LLC, an entity whose sole owner is Raymond M. Gee, the Company’s chairman and chief executive officer, and has subsequently entered
into property management agreements with Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital
View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, which are wholly owned subsidiaries
of Gvest Finance LLC. Under the property management agreements, the Company manages the homes owned by the VIEs and the VIEs remit to
the Company all income, less any sums paid out for debt service plus 5% of the debt service payment.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Additionally,
during 2021, the Company formed two entities, Brainerd Place LLC and Bull Creek LLC, for the purpose of exploring opportunities to develop
mobile home communities. The Company owns 49% of these entities and Gvest Real Estate LLC, an entity whose sole owner is Raymond
M. Gee, owns 51%. The Company also executed operating agreements with these entities which designate Gvest Capital Management LLC,
a company owned and controlled by Gvest Real Estate Capital LLC, as manager with the authority, power, and discretion to manage and control
the entities’ business decisions. The operating agreements require the Company to make cash contributions to the entities to fund
their activities, operations, and existence, if the Company approves the contribution requests from the manager, which ultimately provides
the 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 the Company’s common ownership by Mr. Gee, its power to
direct the activities of these entities that most significantly impact their economic performance, and the fact that the Company has 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 applicable GAAP.
Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding, including vested stock options during the period. Diluted net income
(loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding plus the weighted
average number of net shares that would be issued upon exercise of stock options pursuant to the treasury stock method. For the year ended
December 31, 2021, the potentially dilutive penny options for the purchase of 656,175 shares of Common Stock were included in basic loss
per share. Total dilutive securities outstanding as of December 31, 2021 totaled 50,000 stock options, 1,886,000 shares of Series A Cumulative
Redeemable Convertible Preferred Stock, which are convertible into Common Stock for a total of 1,866,000 shares,
which are not included in dilutive loss per share as the effect would be anti-dilutive. For the year ended December 31, 2020, the potentially
dilutive penny options for the purchase of 519,675 shares of Common Stock were included in basic loss per share. Total dilutive securities
outstanding as of December 31, 2020 totaled 136,500 stock options, 1,890,000 shares of Series A Cumulative Redeemable Convertible Preferred
Stock, which are convertible into Common Shares for a total of 1,890,000, which are not included in dilutive loss
per share as the effect would be anti-dilutive.
Use of Estimates
The presentation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
Investment Property and Depreciation
Investment property, including property and equipment,
is carried at cost. Depreciation for Sites and Building is computed principally on the straight-line method over the estimated useful
lives of the assets (ranging from 15 to 25 years). Depreciation of Improvements to Sites and Buildings, Rental Homes and Equipment and
Vehicles is computed principally on the straight-line method over the estimated useful lives of the assets (ranging from 3 to 25 years).
Land Development Costs are not depreciated until they are put in use, at which time they are capitalized as Sites and Land Improvements.
Interest Expense pertaining to Land Development Costs are capitalized. Maintenance and Repairs are charged to expense as incurred and
improvements are capitalized. The costs and related accumulated depreciation of property sold or otherwise disposed of are removed from
the financial statement and any gain or loss is reflected in the current period’s results of operations.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Impairment Policy
The Company applies 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.
After the date we determine that a property is held for disposition, depreciation expense is not recorded. There was no impairment during
the years ended December 31, 2021 and 2020.
Cash and Cash Equivalents
The Company considers all highly liquid financial
instruments purchased with an original maturity of three months or less to be cash equivalents.
The Company maintains cash balances at banks and
deposits at times may exceed federally insured limits. Management believes that the financial institutions that hold the Company’s
cash are financially secure and, accordingly, minimal credit risk exists. At December 31, 2021 and 2020, the Company had approximately
$763,000 and $641,000 above the FDIC-insured limit, respectively, including restricted cash held for tenant security deposits of $705,195
and $339,152, respectively.
Stock Based Compensation
All stock based payments to employees, nonemployee
consultants, and to nonemployee directors for their services as directors, including any grants of restricted stock and stock options,
are measured at fair value on the grant date and recognized in the statements of operations as compensation or other expense over the
relevant service period in accordance with FASB ASC Topic 718. Stock based payments to nonemployees are recognized as an expense over
the period of performance. Such payments are measured at fair value at the earlier of the date a performance commitment is reached, or
the date performance is completed. In addition, for awards that vest immediately and are nonforfeitable the measurement date is the date
the award is issued. The Company recorded stock option expense of $66,015 and $2,370 during the years ended December 31, 2021 and 2020,
respectively.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of
the FASB ASC for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB ASC to measure the fair
value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in GAAP and expands disclosures
about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph
820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into broad
levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. Most of the Company’s financial assets do not have a quoted market value. Therefore,
estimates of fair value are necessarily based on a number of significant assumptions (many of which involve events outside the control
of management). Such assumptions include assessments of current economic conditions, perceived risks associated with these financial instruments
and their counterparties, future expected loss experience and other factors. Given the uncertainties surrounding these assumptions, the
reported fair values represent estimates only and, therefore, cannot be compared to the historical accounting model. Use of different
assumptions or methodologies is likely to result in significantly different fair value estimates.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
The fair value of cash and cash equivalents, accounts
receivables, and accounts payable approximates their current carrying amounts since all such items are short-term in nature. The fair
value of variable and fixed rate mortgages payable and lines of credit approximate their current carrying amounts on the balance sheet
since such amounts payable are at approximately a weighted average current market rate of interest.
Reclassifications
Certain amounts in the
prior period presentation have been reclassified to conform with the current presentation. For the year ended December 31, 2020, the Company
reclassed approximately $7,000 from buildings to breakout separately as construction in process on the balance sheet to enable comparison
to the current period.
Income Taxes
The Company accounts for income taxes under the
asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities
based on the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect
for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities
is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to
the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company
considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected
future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize
its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax
asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in
accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that
the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the
more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely
to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties,
if any, with income tax expense in the accompanying consolidated statement of operations. As of December 31, 2021, and December 31, 2020,
there were no such accrued interest or penalties.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13
requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition
of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and
reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual reporting
periods, including interim reporting periods within those periods, beginning after December 15, 2022. The Company is currently evaluating
the potential impact this standard may have on the consolidated financial statements.
In May 2020, the Securities
and Exchange Commission adopted amendments to the financial disclosure requirements in Regulation S-X relating to the
acquisition and disposition of businesses by registrants. The amendments, including Rule 3-05, Financial Statements of Businesses Acquired
or to Be Acquired; Rule 3-14, Special Instructions for Real Estate Operations to Be Acquired; and Article 11, Pro Forma Financial Information,
focus on the financial information required to be disclosed in connection with the acquisition and disposition of businesses, real estate
operations, and investment companies and generally increased the thresholds at which acquisitions are deemed significant and require
additional disclosures. The amendments are effective for fiscal years beginning after December 31, 2020. The Company has evaluated
the impact this standard had on the consolidated financial statements and determined that it had no impact on the consolidated financial
statements. However, the Company will integrate these amendments in evaluating the significance and required additional disclosures upon
acquisitions in future periods as necessary.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Management does not believe that any other recently
issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying unaudited condensed
consolidated financial statements.
Impact of Coronavirus Pandemic
In December 2019, a novel strain of coronavirus
was reported to have surfaced in Wuhan, China. On March 11, 2020, the World Health Organization declared the outbreak a pandemic,
and on March 13, 2020, the United States declared a national emergency.
Some states and cities,
including some where the Company’s properties are located, have reacted by instituting quarantines, restrictions on travel, “stay
at home” rules and restrictions on the types of businesses that may continue to operate and in 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. In addition, the Company’s property
managers may be limited in their ability to properly maintain the Company’s properties. Enforcing the Company’s rights
as landlord against tenants who fail to pay rent or otherwise do not comply with the terms of their leases may not be possible
as many jurisdictions, including those where are properties are located, have established rules and/or regulations preventing the Company
from evicting tenants for certain periods in response to the pandemic. If the Company is unable to enforce its rights as landlords, its
business would be materially affected
If the current pace of
the pandemic does not continue to slow and the spread of the virus is not contained, the Company’s business operations could
be further delayed or interrupted. The Company expects that government and health authorities may announce new or extend existing restrictions,
which could require the Company to make further adjustments to its operations in order to comply with any such restrictions. The duration
of any business disruption cannot be reasonably estimated at this time but may materially affect the Company’s ability to operate
its business and result in additional costs.
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.
NOTE 2 – REVISION OF PRIOR YEAR IMMATERIAL
MISSTATEMENT
Immaterial Misstatement – Springlake
Purchase Price Allocation
During the year ended December 31, 2021, the Company
identified an error in the allocation of the purchase price of its Springlake community acquired in November 2019 that overstated the
value of buildings and understated the value of land improvements and land on the balance sheet.
The Company assessed the materiality of this error
considering both qualitative and quantitative factors and determined that for the quarters ended December 31, 2019 through September 30,
2021, the error was material to the individual line items on the balance sheet, but immaterial to the balance sheet in total since the
correction only requires a reclassification.
The Company determined that for the quarters ended
December 31, 2019 through September 30, 2021, the error was immaterial to the consolidated statement of operations, consolidated statement
of changes in deficit, and consolidated statement of cash flows, so the impact to these statements is not presented below.
The Company has decided to correct this error
as a revision to its previously issued consolidated balance sheet for the quarters ended December 31, 2019 through September 30, 2021.
To correct this error, the Company reclassified $1,105,863 from buildings to land improvements and $476,787 from buildings to land in
accordance with a third-party appraisal of the property.
Immaterial Misstatement – 2020 Homes
Sale to Gvest VIEs
During the year ended December 31, 2021, the Company
identified an error in the recording of the December 2020 related party sale of mobile homes to Gvest Finance LLC and Gvest Homes I LLC.
The Company recorded the sale of all 364 park owned homes within the ARC, Countryside, Crestview, and Maple communities, but only 305
park owned homes were sold. The Company retained ownership of the remaining homes located within the ARC, Crestview, and Maple communities.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
The Company assessed the materiality of this error
considering both qualitative and quantitative factors and determined that for the year ended December 31 2020, the error was immaterial
to the consolidated balance sheet, and consolidated statement of changes in deficit in total, but material to the amounts attributable
to VIEs versus attributable to Manufactured Housing Properties Inc.
The Company has decided to correct this error
as a revision to its previously issued consolidated balance sheet and statement of changes in deficit for the year and quarters ended
December 31, 2020 through September 30, 2021 and has reclassified $869,481 from accumulated Manufactured Housing Properties Inc. deficit
instead to non-controlling interest in VIE.
The Company determined for the quarters ended
December 31, 2020 through September 30, 2021, the error was immaterial to the consolidated statement of operations. The consolidated statement
of cash flows is not presented because there is no impact on total cash flows from operating, investing, or financing activities from
this error.
The tables below present the impacts of the revisions
in the Company’s consolidated financial statements.
Consolidated Balance Sheets
| |
December 31, 2019 | | |
March 31,
2020 | | |
June 30,
2020 | | |
September 30,
2020 | | |
December 31, 2020 | | |
March 31,
2021 | | |
June 30,
2021 | | |
September 30,
2021 | |
As Previously Reported: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Land | |
$ | 10,885,938 | | |
$ | 12,094,338 | | |
$ | 11,378,818 | | |
$ | 11,378,818 | | |
$ | 11,293,818 | | |
$ | 12,343,818 | | |
$ | 12,343,818 | | |
$ | 15,293,818 | |
Land Improvements | |
| 17,466,801 | | |
| 20,286,401 | | |
| 21,845,771 | | |
| 22,007,126 | | |
| 20,924,112 | | |
| 21,506,262 | | |
| 21,580,874 | | |
| 24,107,172 | |
Buildings | |
| 7,067,520 | | |
| 7,396,472 | | |
| 6,791,371 | | |
| 7,048,699 | | |
| 8,026,993 | | |
| 9,025,775 | | |
| 9,586,461 | | |
| 12,735,309 | |
Construction in Process | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,897,258 | |
Total Investment Property | |
| 35,420,259 | | |
| 39,777,211 | | |
| 40,015,960 | | |
| 40,434,643 | | |
| 40,244,923 | | |
| 42,875,855 | | |
| 43,511,153 | | |
| 54,033,557 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Accumulated MHPC Deficit | |
| (3,840,085 | ) | |
| (4,194,251 | ) | |
| (4,440,913 | ) | |
| (4,497,737 | ) | |
| (4,443,675 | ) | |
| (4,857,951 | ) | |
| (5,044,928 | ) | |
| (4,621,293 | ) |
Total MHPC Deficit | |
| (2,956,875 | ) | |
| (3,741,871 | ) | |
| (4,444,310 | ) | |
| (4,932,523 | ) | |
| (5,372,270 | ) | |
| (6,314,063 | ) | |
| (7,004,003 | ) | |
| (7,137,732 | ) |
NCI in VIE | |
| 25,707 | | |
| 21,257 | | |
| 26,030 | | |
| 40,303 | | |
| 450,206 | | |
| 497,662 | | |
| 586,010 | | |
| 39,504 | |
Total Deficit | |
| (2,931,168 | ) | |
| (3,720,614 | ) | |
| (4,418,280 | ) | |
| (4,892,220 | ) | |
| (4,922,064 | ) | |
| (5,816,401 | ) | |
| (6,417,993 | ) | |
| (7,098,228 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Adjustments: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Land | |
$ | 476,787 | | |
$ | 476,787 | | |
$ | 476,787 | | |
$ | 476,787 | | |
$ | 476,787 | | |
$ | 476,787 | | |
$ | 476,787 | | |
$ | 476,787 | |
Land Improvements | |
| 1,105,863 | | |
| 1,105,863 | | |
| 1,105,863 | | |
| 1,105,863 | | |
| 1,105,863 | | |
| 1,105,863 | | |
| 1,105,863 | | |
| 1,105,863 | |
Buildings | |
| (1,582,650 | ) | |
| (1,582,650 | ) | |
| (1,582,650 | ) | |
| (1,582,650 | ) | |
| (1,582,650 | ) | |
| (1,582,650 | ) | |
| (1,582,650 | ) | |
| (1,582,650 | ) |
Construction in Process | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| | |
Total Investment Property | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Accumulated MHPC Deficit | |
| - | | |
| - | | |
| - | | |
| - | | |
| 869,481 | | |
| 869,481 | | |
| 869,481 | | |
| 869,481 | |
Total MHPC Deficit | |
| - | | |
| - | | |
| - | | |
| - | | |
| 869,481 | | |
| 869,481 | | |
| 869,481 | | |
| 869,481 | |
NCI in VIE | |
| - | | |
| - | | |
| - | | |
| - | | |
| (869,481 | ) | |
| (869,481 | ) | |
| (869,481 | ) | |
| (869,481 | ) |
Total Deficit | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
As Revised: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Land | |
$ | 11,362,725 | | |
$ | 12,571,125 | | |
$ | 11,855,605 | | |
$ | 11,855,605 | | |
$ | 11,770,605 | | |
$ | 12,820,605 | | |
$ | 12,820,605 | | |
$ | 15,770,605 | |
Land Improvements | |
| 18,572,664 | | |
| 21,392,264 | | |
| 22,951,264 | | |
| 23,112,989 | | |
| 22,029,975 | | |
| 22,612,125 | | |
| 22,686,737 | | |
| 25,213,035 | |
Buildings | |
| 5,484,870 | | |
| 5,813,822 | | |
| 5,208,721 | | |
| 5,466,049 | | |
| 6,444,343 | | |
| 7,443,125 | | |
| 8,003,811 | | |
| 11,152,659 | |
Construction in Process | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,897,258 | |
Total Investment Property | |
| 35,420,259 | | |
| 39,777,211 | | |
| 40,015,960 | | |
| 40,434,643 | | |
| 40,244,923 | | |
| 42,875,855 | | |
| 43,511,153 | | |
| 54,033,557 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Accumulated MHPC Deficit | |
| (3,840,085 | ) | |
| (4,194,251 | ) | |
| (4,440,913 | ) | |
| (4,497,737 | ) | |
| (3,574,194 | ) | |
| (3,988,470 | ) | |
| (4,175,447 | ) | |
| (3,751,812 | ) |
Total MHPC Deficit | |
| (2,956,875 | ) | |
| (3,741,871 | ) | |
| (4,444,310 | ) | |
| (4,932,523 | ) | |
| (4,502,789 | ) | |
| (5,444,582 | ) | |
| (6,134,522 | ) | |
| (6,268,251 | ) |
NCI in VIE | |
| 25,707 | | |
| 21,257 | | |
| 26,030 | | |
| 40,303 | | |
| (419,275 | ) | |
| (371,819 | ) | |
| (283,471 | ) | |
| (829,977 | ) |
Total Deficit | |
| (2,931,168 | ) | |
| (3,720,614 | ) | |
| (4,418,280 | ) | |
| (4,892,220 | ) | |
| (4,922,064 | ) | |
| (5,816,401 | ) | |
| (6,417,993 | ) | |
| (7,098,228 | ) |
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Consolidated Statements of Changes in Deficit
| |
31-Dec-20 | | |
31-Mar-21 | | |
30-Jun-21 | | |
30-Sep-21 | |
As Previously Reported: | |
| | |
| | |
| | |
| |
Accumulated Deficit - MHPC - Deemed Dividend | |
- | | |
- | | |
- | | |
- | |
Total MHPC Accumulated Deficit | |
| (4,443,675 | ) | |
| (4,857,951 | ) | |
| (5,044,928 | ) | |
| (4,621,293 | ) |
Total MHPC Deficit | |
| (5,372,270 | ) | |
| (6,314,063 | ) | |
| (7,004,003 | ) | |
| (7,137,732 | ) |
Non-Controlling Interest | |
| 450,206 | | |
| 497,662 | | |
| 586,010 | | |
| 39,504 | |
Consolidated Deficit | |
| (4,922,064 | ) | |
| (5,816,401 | ) | |
| (6,417,993 | ) | |
| (7,098,228 | ) |
| |
| | | |
| | | |
| | | |
| | |
Adjustments | |
| | | |
| | | |
| | | |
| | |
Accumulated Deficit - MHPC - Deemed Dividend | |
| 869,481 | | |
| 869,481 | | |
| 869,481 | | |
| 869,481 | |
Total MHPC Accumulated Deficit | |
| 869,481 | | |
| 869,481 | | |
| 869,481 | | |
| 869,481 | |
Total MHPC Deficit | |
| 869,481 | | |
| 869,481 | | |
| 869,481 | | |
| 869,481 | |
Non-Controlling Interest | |
| (869,481 | ) | |
| (869,481 | ) | |
| (869,481 | ) | |
| (869,481 | ) |
Consolidated Deficit | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
As Revised: | |
| | | |
| | | |
| | | |
| | |
Accumulated Deficit - MHPC - Deemed Dividend | |
| 869,481 | | |
| - | | |
| - | | |
| - | |
Total MHPC Accumulated Deficit | |
| (3,574,194 | ) | |
| (3,988,470 | ) | |
| (4,175,447 | ) | |
| (3,751,812 | ) |
Total MHPC Deficit | |
| (4,502,789 | ) | |
| (5,444,582 | ) | |
| (6,134,522 | ) | |
| (6,268,251 | ) |
Non-Controlling Interest | |
| (419,275 | ) | |
| (371,819 | ) | |
| (283,471 | ) | |
| (829,977 | ) |
Consolidated Deficit | |
| (4,922,064 | ) | |
| (5,816,401 | ) | |
| (6,417,993 | ) | |
| (7,098,228 | ) |
NOTE 3 – VARIABLE INTEREST ENTITIES
The Company
consolidates the accounts of Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden
Oaks Homes LLC, Gvest Springlake Homes LLC, Gvest Carolinas 4 Homes LLC, Brainerd Place LLC, and Bull Creek LLC and will continue to do
so until they are no longer considered VIEs. During the year ended December 31, 2021, Gvest Finance LLC formed five wholly owned subsidiaries,
Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest Hidden Oaks Homes LLC, Gvest Springlake Homes LLC, and Gvest Carolinas 4
Homes LLC and the Company formed two entities, Brainerd Place LLC and Bull Creek LLC, all of which are considered VIEs.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Included
in the consolidated results of operations for the year ended December 31, 2021 and 2020 were net loss of $460,609 and net income of $451,876,
respectively, after deducting an additional management fee equal to cash flow after debt service per the management agreement of $579,703 and
$0, respectively.
The consolidated
balance sheets as of December 31, 2021 and 2020 included the following amounts related to the consolidated VIEs.
| |
2021 | | |
2020 | |
Assets | |
| | |
(As Revised**) | |
Investment Property | |
| 14,144,268 | | |
| 5,067,535 | |
Accumulated Depreciation and Amortization | |
| (597,650 | ) | |
| (288,739 | ) |
Net Investment Property | |
| 13,546,618 | | |
| 4,778,796 | |
Cash and Cash Equivalents | |
| 98,900 | | |
| 9,234 | |
Accounts Receivable, net | |
| 60,506 | | |
| 3,506 | |
Other Assets | |
| 158,920 | | |
| 14,652 | |
Total Assets | |
$ | 13,864,944 | | |
$ | 4,806,188 | |
| |
| | | |
| | |
Liabilities and Deficit | |
| | | |
| | |
Accounts Payable | |
$ | 169,298 | | |
$ | 4,969 | |
Notes Payable | |
| 6,793,319 | | |
| 1,994,640 | |
Line of Credit, $151,749 and $0 debt discount | |
| 6,200,607 | | |
| 3,214,916 | |
Other Liabilities* | |
| 1,679,233 | | |
| 9,439 | |
Tenant Security Deposits | |
| - | | |
| 1,499 | |
Total Liabilities | |
| 14,842,457 | | |
| 5,225,463 | |
| |
| | | |
| | |
Non-Controlling interest | |
| (977,513 | ) | |
| (419,275 | ) |
Total Non-controlling interest in variable interest entity equity | |
| (977,513 | ) | |
| (419,275 | ) |
* | Included in other liabilities is an intercompany balance of $1,515,715 and $0 as of December 31, 2021 and 2020, respectively. The intercompany balances have been eliminated on the consolidated balance sheet. |
** | The balances as of and the results of operations for the year ended December 31, 2020 have been revised to reflect the correction of an error in the recording of the December sale of homes to Gvest Finance LLC and Gvest Homes I LLC. The Company recorded the sale of all 364 park owned homes within the ARC, Countryside, Crestview, and Maple communities, but only 305 park owned homes were sold. See Note 2 for more information. |
NOTE 4 – INVESTMENT PROPERTY
The following table summarizes the Company’s
property and equipment balances are generally used to depreciate the assets on a straight-line basis:
| |
2021 | | |
2020 | |
| |
| | |
(As
Revised) | |
Investment Property | |
| | |
| |
Land | |
$ | 18,854,760 | | |
$ | 11,770,605 | |
Site and Land Improvements | |
| 35,133,079 | | |
| 22,029,975 | |
Buildings and Improvements | |
| 14,666,296 | | |
| 6,437,251 | |
Construction in Process | |
| 3,030,456 | | |
| 7,092 | |
Total Investment Property | |
| 71,684,591 | | |
| 40,244,923 | |
Accumulated Depreciation | |
| (4,832,300 | ) | |
| (2,779,201 | ) |
Net Investment Property | |
$ | 66,852,291 | | |
| 37,465,722 | |
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Depreciation expense for the years ended December
31, 2021 and 2020 was $2,060,882 and $1,652,509, respectively.
During the
year ended December 31, 2021, Gvest Finance LLC, the Company’s VIE, acquired thirty-four new manufactured homes for approximately
$1,900,000 including set up costs for use in the Springlake community and fourteen new manufactured homes for approximately $860,000
including set up costs for use in the Golden Isles community that are not yet occupiable and still in the set-up phase as of December
31, 2021. These homes are included in Construction in Process on the balance sheet. In prior filings, Construction in Process account
included only homes undergoing renovations between tenants and was immaterial and thus was included in the Buildings and Improvements
line item and not separately stated on the consolidated balance sheet. The December 31, 2020 Investment Property balances have been reclassified
to separately state $7,092 Construction in Process for purposes of comparison across periods.
During the
year ended December 31, 2021, the Company acquired twenty-four manufactured housing communities and accounted for all as asset acquisitions. Total
gross acquisition costs incurred with 2021 acquisitions of $474,568 are included in Site and Land Improvements, $7,213 are included
in Buildings and Improvements, and $11,465 of accumulated amortization of these acquisition costs are included in the above table
and on the consolidated balance sheet for the year ended December 31, 2021. The Company acquired two manufactured housing communities
in Lancaster, South Carolina and Morristown, Tennessee and accounted for them as asset acquisitions during the year ended December 31,
2020. See Note 5 for more information about these acquisitions.
NOTE 5 – ACQUISITIONS AND DISPOSALS
During the
years ended December 31, 2021 and 2020, the Company acquired twenty-four and two communities, respectively. These were acquisitions from
third parties and have been accounted for as asset acquisitions. The mobile homes in the communities indicated “Gvest” were
acquired by the Company’s VIEs - Gvest Finance LLC, Gvest Homes I LLC, Gvest Anderson Homes LLC, Gvest Capital View Homes LLC, Gvest
Hidden Oaks Homes LLC and Gvest Carolinas 4 Homes LLC - and are included in consolidation. The homes in the Countryside community were
sold by the Company to Gvest Finance LLC during the year ended December 31, 2020.
Acquisition Date | |
Name (number of
communities) | |
Land | | |
Improvements | | |
Building | | |
Total Purchase
Price | |
March 2020 | |
Countryside MHP | |
$ | 152,880 | | |
$ | 3,194,245 | | |
$ | 352,875 | | |
$ | 3,700,000 | |
March 2020 | |
Evergreen MHP | |
| 340,000 | | |
| 1,111,000 | | |
| - | | |
| 1,451,000 | |
| |
Total Purchase Price | |
$ | 492,880 | | |
$ | 4,305,245 | | |
$ | 352,875 | | |
$ | 5,151,000 | |
| |
| |
| | | |
| | | |
| | | |
| | |
March 2021 | |
Golden Isles MHP | |
$ | 1,050,000 | | |
$ | 487,500 | | |
$ | - | | |
$ | 1,537,500 | |
March 2021 | |
Golden Isles Gvest | |
| - | | |
| - | | |
| 787,500 | | |
| 787,500 | |
July 2021 | |
Anderson MHP (10) | |
| 2,310,000 | | |
| 763,417(a | ) | |
| 120,390 | | |
| 3,193,807 | |
July 2021 | |
Anderson Gvest | |
| - | | |
| - | | |
| 2,006,193 | | |
| 2,006,193 | |
September 2021 | |
Capital View MHP | |
| 350,000 | | |
| 757,064 | | |
| - | | |
| 1,107,064 | |
September 2021 | |
Capital View Gvest | |
| - | | |
| - | | |
| 342,936 | | |
| 342,936 | |
September 2021 | |
Hidden Oaks MHP | |
| 290,000 | | |
| 843,440 | | |
| - | | |
| 1,133,440 | |
September 2021 | |
Hidden Oaks Gvest | |
| - | | |
| - | | |
| 416,560 | | |
| 416,560 | |
October 2021 | |
North Raleigh MHP (5) | |
| 1,613,828 | | |
| 4,505,268 | | |
| 1,330,904 | | |
| 7,450,000 | |
December 2021 | |
Dixie MHP | |
| 59,133 | | |
| 658,351 | | |
| 32,516 | | |
| 750,000 | |
December 2021 | |
Driftwood MHP | |
| 53,453 | | |
| 352,163 | | |
| 19,384 | | |
| 425,000 | |
December 2021 | |
Meadowbrook MHP | |
| 410,421 | | |
| 781,379 | | |
| 133,200 | | |
| 1,325,000 | |
December 2021 | |
Asheboro MHP (2) | |
| 723,778 | | |
| 1,411,726 | | |
| - | | |
| 2,135,504 | |
December 2021 | |
Asheboro Gvest | |
| - | | |
| - | | |
| 614,496 | | |
| 614,496 | |
December 2021 | |
Morganton MHP | |
| 223,542 | | |
| 1,846,024 | | |
| - | | |
| 2,069,566 | |
December 2021 | |
Morganton Gvest | |
| - | | |
| - | | |
| 680,434 | | |
| 680,434 | |
| |
Total Purchase Price | |
$ | 7,084,155 | | |
$ | 12,406,332 | | |
$ | 6,484,513 | | |
$ | 25,975,000 | |
| |
Acquisition Costs | |
| - | | |
| 474,568 | | |
| 7,213 | | |
| 481,781 | |
| |
Total Investment Property | |
$ | 7,084,155 | | |
$ | 12,880,900 | | |
$ | 6,491,726 | | |
$ | 26,456,781 | |
(a) Anderson MHP LLC also purchased vehicles and
equipment totaling $156,465 which is included in the improvements column above.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Butternut Sale
During the year ended December 31, 2020, the Company
sold the Butternut manufactured housing community for a total sale price of $2,100,000. The cost net of accumulated depreciation of the
community at the time of the sale was $1,338,022. The Company wrote off mortgage costs of $109,529 which is included in refinancing costs
on the consolidated statement of operations. The Company recognized a gain on the sale of the property of $761,978 during the year ended
December 31, 2020.
Pro-forma Financial Information (unaudited)
The following
unaudited pro-forma information presents the combined results of operations for the years ended December 31, 2021 and 2020 as if the 2021
and 2020 acquisitions and disposition of manufactured housing communities listed above, the sale of mobile homes within the ARC, Crestview,
Countryside, and Maple communities in December 2020 to Gvest Finance LLC and Gvest Homes I LLC, and the acquisition of the Sunnyland community
in January 2022 had occurred on January 1, 2020.
| |
Unaudited | |
| |
For the Years Ended December 31, | |
| |
2021 | | |
2020 | |
Total revenue | |
$ | 11,767,812 | | |
$ | 11,069,625 | |
Total community operating expenses | |
| 4,220,200 | | |
| 4,133,478 | |
Corporate payroll and overhead | |
| 3,013,810 | | |
| 1,581,807 | |
Depreciation expense | |
| 3,181,404 | | |
| 3,068,380 | |
Interest expense | |
| 3,102,659 | | |
| 3,021,533 | |
Gain on sale of property | |
| - | | |
| 761,978 | |
Other income | |
| 139,300 | | |
| - | |
Net income (loss) | |
$ | (1,610,961 | ) | |
$ | 26,405 | |
Net loss attributable to non-controlling interest | |
| (611,571 | ) | |
| (349,943 | ) |
Net income (loss) attributable to Manufactured Housing Properties, Inc. | |
| (999,390 | ) | |
| 376,348 | |
Preferred stock dividends / accretion | |
| 2,175,472 | | |
| 1,850,860 | |
Net loss | |
$ | (3,174,862 | ) | |
$ | (1,474,513 | ) |
Net loss per share | |
$ | (0.24 | ) | |
$ | (0.11 | ) |
NOTE 6 – PROMISSORY NOTES AND LINES
OF CREDIT
Promissory Notes
The Company has issued promissory
notes payable to lenders related to the acquisition of its manufactured housing communities and mobile homes. The interest rates on these
promissory notes range from 3.310% to 5.875% with 5 to 30 years principal amortization. Two of the promissory notes have an initial 6
month, two had an initial 12 month, seven have an initial 24 month, one has an initial 60 month, and one promissory note has a 180-month
period of interest only payments. The promissory notes are secured by the real estate assets and eighteen loans totaling $36,554,126 are
guaranteed by Raymond M. Gee.
On May 1,
2020, the Company received a $139,300 Paycheck Protection Program (the “PPP”) loan from the United States Small Business
Administration (the “SBA”) under provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).
The PPP loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are
deferred for six months after the date of disbursement. The PPP provides that the loan may be partially or wholly forgiven if the
funds are used for certain qualifying expenses as described in the CARES Act. The Company used the proceeds from the PPP loan for qualifying
expenses and applied for forgiveness of the PPP loan in accordance with the terms of the CARES Act. The loan was forgiven by the SBA on
June 7, 2021.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
As of December 31, 2021,
the outstanding balance on these notes was $50,955,777. The following are the terms of these notes:
|
|
Maturity
Date |
|
|
Interest
Rate |
|
|
Balance
12/31/21 |
|
|
Balance
12/31/20 |
|
Pecan Grove MHP LLC |
|
|
02/22/29 |
|
|
|
5.250 |
% |
|
$ |
2,969,250 |
|
|
$ |
3,037,625 |
|
Azalea MHP LLC |
|
|
03/01/29 |
|
|
|
5.400 |
% |
|
|
790,481 |
|
|
|
810,741 |
|
Holly Faye MHP LLC |
|
|
03/01/29 |
|
|
|
5.400 |
% |
|
|
579,825 |
|
|
|
579,825 |
|
Chatham MHP LLC |
|
|
04/01/24 |
|
|
|
5.875 |
% |
|
|
1,698,800 |
|
|
|
1,734,828 |
|
Lakeview MHP LLC |
|
|
03/01/29 |
|
|
|
5.400 |
% |
|
|
1,805,569 |
|
|
|
1,832,264 |
|
B&D MHP LLC |
|
|
05/02/29 |
|
|
|
5.500 |
% |
|
|
1,779,439 |
|
|
|
1,818,303 |
|
Hunt Club MHP LLC |
|
|
01/01/33 |
|
|
|
3.430 |
% |
|
|
2,398,689 |
|
|
|
2,445,011 |
|
Crestview MHP LLC |
|
|
12/31/30 |
|
|
|
3.250 |
% |
|
|
4,682,508 |
|
|
|
4,800,000 |
|
Maple Hills MHP LLC |
|
|
12/01/30 |
|
|
|
3.250 |
% |
|
|
2,341,254 |
|
|
|
2,400,000 |
|
Springlake MHP LLC |
|
|
11/14/21 |
|
|
|
3.310 |
% |
|
|
- |
|
|
|
4,000,000 |
|
Springlake MHP LLC |
|
|
12/10/26 |
|
|
|
4.750 |
% |
|
|
4,016,250 |
|
|
|
- |
|
ARC MHP LLC |
|
|
01/01/30 |
|
|
|
5.500 |
% |
|
|
3,809,742 |
|
|
|
3,885,328 |
|
Countryside MHP LLC |
|
|
03/20/50 |
|
|
|
5.500 |
% |
|
|
1,684,100 |
|
|
|
1,700,000 |
|
Evergreen MHP LLC |
|
|
04/01/32 |
|
|
|
3.990 |
% |
|
|
1,115,261 |
|
|
|
1,135,502 |
|
Golden Isles MHP LLC |
|
|
03/31/26 |
|
|
|
4.000 |
% |
|
|
787,500 |
|
|
|
- |
|
Anderson MHP LLC* |
|
|
07/10/26 |
|
|
|
5.210 |
% |
|
|
2,153,807 |
|
|
|
- |
|
Capital View MHP LLC* |
|
|
09/10/26 |
|
|
|
5.390 |
% |
|
|
817,064 |
|
|
|
- |
|
Hidden Oaks MHP LLC* |
|
|
09/10/26 |
|
|
|
5.330 |
% |
|
|
823,440 |
|
|
|
- |
|
North Raleigh MHP LLC |
|
|
11/01/26 |
|
|
|
4.750 |
% |
|
|
5,304,409 |
|
|
|
- |
|
Charlotte 3 Park MHP LLC (Dixie, Driftwood, Meadowbrook)(1) |
|
|
03/01/22 |
|
|
|
5.000 |
% |
|
|
1,500,000 |
|
|
|
- |
|
Carolinas 4 MHP LLC* |
|
|
01/10/27 |
|
|
|
5.300 |
% |
|
|
3,105,070 |
|
|
|
|
|
Gvest Finance LLC (B&D homes) |
|
|
05/01/24 |
|
|
|
5.000 |
% |
|
|
657,357 |
|
|
|
694,640 |
|
Gvest Finance LLC (Countryside homes) |
|
|
03/20/50 |
|
|
|
5.500 |
% |
|
|
1,287,843 |
|
|
|
1,300,000 |
|
Gvest Finance LLC (Golden Isles homes) |
|
|
03/31/36 |
|
|
|
4.000 |
% |
|
|
787,500 |
|
|
|
- |
|
Gvest Anderson Homes LLC* |
|
|
07/10/26 |
|
|
|
5.210 |
% |
|
|
2,006,193 |
|
|
|
- |
|
Gvest Capital View Homes LLC* |
|
|
09/10/26 |
|
|
|
5.390 |
% |
|
|
342,936 |
|
|
|
- |
|
Gvest Hidden Oaks Homes LLC* |
|
|
09/10/26 |
|
|
|
5.330 |
% |
|
|
416,560 |
|
|
|
- |
|
Gvest Carolinas 4 Homes LLC (Asheboro, Morganton)* |
|
|
01/10/27 |
|
|
|
5.300 |
% |
|
|
1,294,930 |
|
|
|
|
|
PPP Loan - MHP |
|
|
05/01/22 |
|
|
|
1.000 |
% |
|
|
- |
|
|
|
139,300 |
|
Total Note Payables |
|
|
|
|
|
|
|
|
|
|
50,955,777 |
|
|
|
32,313,367 |
|
Discount Direct Lender Fees |
|
|
|
|
|
|
|
|
|
|
(2,064,294 |
) |
|
|
(1,096,629 |
) |
Total Net of Discount |
|
|
|
|
|
|
|
|
|
$ |
48,891,483 |
|
|
$ |
31,216,738 |
|
| (1) | The Company repaid the Charlotte 3 Park MHP LLC note payable of $1,500,000 on March 1, 2022. See Note 10 for more details. |
| * | The notes indicated above are
subject to certain financial covenants. |
During the year ended December 31, 2021, the Company
refinanced its Springlake MHP LLC note payable totaling $4,000,000 to a new note with a different lender totaling $4,016,000. As of December
31, 2021, the Company recognized refinancing cost expense totaling $87,985 and capitalized $75,141 of debt issuance costs related to the
new note. Also during the year ended December 31, 2021, Gvest Finance LLC paid off a note payable totaling $309,271 that was originally
used to purchase new homes that were integrated into the Springlake community. This note was repaid with proceeds from the Springlake
New Home Facility described below. Gvest Finance LLC recognized refinance cost totaling $6,204 related to this repayment.
During the year ended December 31, 2020, the Company
refinanced a total of $16,374,007 from loans payable to $15,245,000 of new notes payable from five of the communities. The Company used
the additional loans payable proceeds from the refinance to retire the related party note payable described below. As of December 31,
2020, the Company recognized refinancing cost expense totaling $464,568 and capitalized $640,895 of mortgage costs related to the refinancing.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Metrolina Promissory Notes
On May 8, 2017, the Company issued a promissory
note to Metrolina Loan Holdings, LLC (“Metrolina”) in the principal amount of $3,000,000. The note is interest only payment
based on 8%, and 10% deferred until maturity to be paid with principal balance. This note was to mature in May of 2023. In September 2020,
the Company paid off the full balance and terminated the note. This related party note was guaranteed by Raymond M. Gee. As of December
31, 2021 and 2020, the balance on this note was $0.
On October 22, 2021, the Company issued a promissory
note to Metrolina in the principal amount of $1,500,000. The note bears interest at a rate of 18% per annum and matures on April 1, 2023.
During the first six months of the note, any prepayment would require the Company to pay a yield maintenance fee equal to six months of
interest. Thereafter, the loan may be prepaid at any time without penalty or fee. The note is guaranteed by Mr. Gee. As of December 31,
2021, the balance on this note was $1,500,000 and interest expense for the year totaled $51,780.
Gvest Revolving Promissory Notes
On October 1, 2017, the Company issued a revolving
promissory note to Raymond M. Gee, pursuant to which the Company could borrow up to $1,500,000 from Mr. Gee on a revolving basis for working
capital purposes. In September 2020, the Company paid off the full balance; however, the line of credit remained available to the Company
until it was cancelled in December 2021. As of December 31, 2021 and 2020, the outstanding balance on this note was $0.
On December 27, 2021, the Company issued a similar
revolving promissory note to Gvest Real Estate Capital, LLC, pursuant to which the Company may borrow up to $1,500,000 on a revolving
basis for working capital or acquisition purposes. On the same date, the Company borrowed $150,000. This note has a five-year term and
is interest-only based on an 15% annual rate through the maturity date and is unsecured. As of December 31, 2021, the outstanding balance
on this note was $150,000.
Line of Credit – ARC, Crestview, and
Maple Occupied Home Facility
On December 24, 2020, Gvest Homes I LLC entered
into a loan agreement with a lender for a commitment amount of up to $20,000,000, provided that only up to $8,500,000 is to be used for
used homes within the ARC, Crestview and Maple communities. The agreement requires the maintenance of certain financial ratios and other
affirmative and negative covenants.
On December
24, 2020 the lender agreed to advance $3,348,967 to the Company. During the first quarter of 2021, the lender agreed to increase
this amount to $3,422,260. As of December 2021, $850,000 was still due from the lender. On December 17, 2021, the lender advanced
$838,000 under the Multi-Community Rental Financing Facility discussed below and the funds were used to pay the Company the outstanding
balance owed from the 2020 sale of ARC homes to Gvest Homes I LLC. Subsequently, Gvest Homes I LLC reduced the line of credit balance
of the ARC, Crestview, and Maple Occupied Home Facility to the total amount funded to date. As of December 31, 2021 and 2020, the outstanding
balance on this line of credit was $2,517,620 and $3,348,967, respectively, presented on the balance sheet net of discount direct
lender fees of $95,221 and $134,051, respectively.
The line
of credit bears interest at 8.375% and maturity date of the loan is January 1, 2030. During the years ended December 31, 2021
and 2020, interest expense totaled $168,770 and $587, respectively. Pursuant to the agreement, the Company is obligated to pay a fee to
the lender equal to 1% of the amount of each advance which funding fee shall be deducted from the then available commitment amount.
The line of credit is guaranteed by Raymond M. Gee.
Lines
of Credit – Multi-Community Floorplan and Rental Financing Facilities
On July
26, 2021, Gvest Finance LLC entered into a floorplan credit agreement, rental homes credit agreement, and a credit and security supplemental
agreement pursuant to which the lender has agreed to make available to Gvest Finance LLC a secured credit facility with a joint, aggregate
credit limit of $5,000,000, consisting of (i) a credit limit of up to $1,000,000 under a floorplan line to be used to finance the acquisition
of manufactured homes for retail sale and (ii) a credit limit of up to $4,000,000 under a rental line to finance the acquisition of rental
homes. The lender subsequently agreed to extend the credit limit for the floorplan line to $2,000,000.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
On November
12, 2021, Gvest Finance LLC repaid the outstanding balance on the floorplan line as of that date totaling $1,676,634 using funds advanced
from the Springlake New Home Facility discussed below. As of December 31, 2021, the balance on the floorplan line of credit was $1,104,255
as Gvest Finance LLC borrowed additional funds of $1,104,255 after the initial repayment which is presented on the balance sheet net of
discount direct lender fees of $1,612.
The floorplan
line of credit interest is calculated at a schedule as follows: (i) Day 1-360: LIBOR plus 6% per annum; (ii) Day 361-720: LIBOR plus
7% per annum; and (iii) Day 721+: LIBOR plus 8% per annum. Interest shall also accrue at the lesser of (a) the “LIBOR Rate”,
plus 10% per annum and (b) the maximum lawful rate of interest permitted under applicable law. During the year ended December 31, 2021,
total interest expense was $23,933.
The maturity
date of the of the floorplan line of credit will vary based on each statement of financial transaction (“SOFT”), a report
identifying the funded homes and the applicable financial terms. Gvest Finance LLC promises to repay each floor plan advance as follows:
(i) Gvest Finance LLC shall pay a principal amount in an amount equal to the original principal amount of such advance multiplied by the
percentage specified in the applicable SOFT, commencing on the 15th day of the first full month after the first anniversary
of any advance and continuing on the 15th day of each month thereafter; (ii) interest shall be payable monthly, in arrears,
and shall be due and payable on or before the 15th day of the month following the month in which such interest accrues;
and (iii) Gvest Finance LLC will pay to lender an amount equal to the original invoice price of such homes inventory, less all principal
payments made with respect to such inventory pursuant to (ii) above, plus all billed and unpaid interest and any applicable fees, upon
the sale of inventory financed or refinanced by lender.
The rental
line of credit bears interest at the greater of 3.25% or the highest prime rate of interest published in the Wall Street Journal
on either (A) the date when the lender advances the loan or (B) the last day of the 60th month following the month of the date
when the lender advances the loan, plus 375 basis points in either case. The rental line of credit matures ten years after the
date of each advance. During the year ended December 31, 2021, total interest expense was $2,409. As
of December 31, 2021, the balance on the rental line was $838,000, presented on the balance sheet net of discount direct lender fees of
$35,000. The proceeds were used to purchase used homes in the ARC community as discussed above.
The floorplan
and rental lines of credit are guaranteed by Raymond M. Gee. Gvest Finance LLC is subject to certain financial covenants as set out in
the loan agreement.
Line
of Credit – Springlake Home Facility
On
November 12, 2021, Gvest Springlake Homes LLC, a wholly owned subsidiary of Gvest Finance LLC, entered into a loan and security agreement
for a line of credit in the principal amount of $2,000,000 to be used to purchase homes for the Springlake community. The immediate advance
of funds from the line of credit totaling $1,892,481 was used to pay off Gvest Finance LLC’s preexisting note totaling $309,271
and the outstanding balance of the Line of Credit – Multi-Community Floor Plan and Rental Financing Facility totaling $1,676,634. The
credit limit on this facility was increased on March 28, 2022 to $3,300,000.
The line of credit bears interest at the lesser of the Wall Street
Journal prime rate plus one percent or 6.75% per annum and matures five years after each advance. As of December 31, 2021, the balance
due on this line of credit was $1,892,481, presented on the balance sheet net of discount direct lender fees of $19,916. Interest expense
related to this facility for the year ended December 31, 2021 totaled $20,936. The line of credit is guaranteed by Raymond M. Gee. Gvest
Springlake Homes LLC is subject to certain financial covenants as set out in the loan agreement.
Maturities of Long-Term Obligations for
Five Years and Beyond
The minimum annual principal payments of notes
payable, related party debt, and lines of credit at December 31, 2021 were:
2022 | |
$ | 2,414,963 | |
2023 | |
| 3,714,410 | |
2024 | |
| 3,337,901 | |
2025 | |
| 1,256,977 | |
2026 | |
| 18,341,237 | |
Thereafter | |
| 29,892,646 | |
Total minimum principal payments | |
$ | 58,958,133 | |
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 7 – COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become involved
in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware
of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse effect on its
business, financial condition or operating results.
NOTE 8 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue up to 10,000,000
shares of preferred stock, $0.01 par value.
Series A Cumulative Redeemable Convertible
Preferred Stock
On May 8, 2019, the Company filed a certificate
of designation with the Nevada Secretary of State pursuant to which the Company designated 4,000,000 shares of its preferred stock as
Series A Cumulative Redeemable Convertible Preferred Stock (the “Series A Preferred Stock”). The Series A Preferred Stock
has the following voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:
Ranking. The Series A Preferred
Stock ranks, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to the Common Stock and pari passu
with the Series B Preferred Stock and Series C Preferred Stock (as defined below). The terms of
the Series A Preferred Stock will not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities
that are equal or junior in rank to the shares of Series A Preferred Stock as to distribution rights and rights upon liquidation, dissolution
or winding up.
Dividend Rate and Payment Dates.
Dividends on the Series A Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record
date. Holders of Series A Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.017 per share each month,
which is equivalent to the rate of 8% of the $2.50 liquidation preference per share. Dividends on shares of Series A Preferred Stock will
continue to accrue even if any of the Company’s agreements prohibit the current payment of dividends or the Company does not have
earnings. During the years ended December 31, 2021 and 2020, the Company paid dividends of $384,864 and $377,353, respectively.
Liquidation Preference. The liquidation
preference for each share of Series A Preferred Stock is $2.50. Upon a liquidation, dissolution or winding up of the Company, holders
of shares of Series A Preferred Stock will be entitled to receive, before any payment or distribution is made to the holders of Common
Stock and on a pari passu basis with holders of Series B Preferred Stock and Series C Preferred Stock, the liquidation
preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not
including, the date of payment with respect to such shares.
Stockholder Optional Conversion.
Each share of Series A Preferred Stock is convertible, at any time and from time to time, at the option of the holder thereof and without
the payment of additional consideration, into that number of shares of Common Stock determined by dividing the liquidation preference
of such share by the conversion price then in effect. The conversion price is initially equal $2.50, subject to adjustment as set forth
in the certificate of designation. In addition, if at any time the trading price of the Common Stock is greater than the liquidation preference
of $2.50, the Company may deliver a written notice to all holders to cause each holder to convert all or part of such holders’ Series
A Preferred Stock.
Company Call and Stockholder Put Options.
Commencing on the fifth anniversary of the initial issuance of shares of Series A Preferred Stock and continuing indefinitely thereafter,
the Company will have a right to call for redemption the outstanding shares of Series A Preferred Stock at a call price equal to $3.75,
or 150% of the original issue price of the Series A Preferred Stock, and correspondingly, each holder of shares of Series A Preferred
Stock shall have a right to put the shares of Series A Preferred Stock held by such holder back to the Company at a put price equal to
$3.75, or 150% of the original issue purchase price of such shares. During the years ended December 31, 2021 and 2020, the Company recorded
a put option value accretion of $472,271 and $472,500, respectively.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Voting Rights. The Company may not
authorize or issue any class or series of equity securities ranking senior to the Series A Preferred Stock as to dividends or distributions
upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend the Company’s articles
of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of the Series A Preferred
Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of the outstanding
shares of Series A Preferred Stock, voting together as a class. Otherwise, holders of the shares of Series A Preferred Stock do not have
any voting rights.
As of December 31, 2021, there were 1,886,000
outstanding shares of Series A Preferred Stock and the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling
$4,715,000 and accretion of put options totaling $1,126,771. As of December 31, 2020, there were 1,890,000 shares of Series A Preferred
Stock issued and outstanding and the Series A Preferred Stock balance was made up of Series A Preferred Stock totaling $4,725,000 and
accretion of put options totaling $656,500.
Series B Cumulative Redeemable Preferred
Stock
On December 2, 2019, the Company filed a certificate
of designation with the Nevada Secretary of State pursuant to which the Company designated 1,000,000 shares of its preferred stock as
Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”). The Series B Preferred Stock has the following
voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions:
Ranking. The Series B Preferred
Stock rank, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to the Common Stock and pari
passu with the Series A Preferred Stock and Series C Preferred Stock. The terms of the
Series B Preferred Stock will not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities
that are equal or junior in rank to the shares of Series B Preferred Stock as to distribution rights and rights upon liquidation, dissolution
or winding up.
Dividend Rate and Payment Dates.
Dividends on the Series B Preferred Stock are cumulative and payable monthly in arrears to all holders of record on the applicable record
date. Holders of Series B Preferred Stock will be entitled to receive cumulative dividends in the amount of $0.067 per share each month,
which is equivalent to the annual rate of 8% of the $10.00 liquidation preference per share; provided that upon an event of default (generally
defined as the Company’s failure to pay dividends when due or to redeem shares when requested by a holder), such amount shall be
increased to $0.083 per month, which is equivalent to the annual rate of 10% of the $10.00 liquidation preference per share. During the
years ended December 31, 2021 and 2020, the Company paid dividends of $579,303 and $433,790 respectively.
Liquidation Preference. The liquidation
preference for each share of Series B Preferred Stock is $10.00. Upon a liquidation, dissolution or winding up of the Company, holders
of shares of Series B Preferred Stock will be entitled to receive, before any payment or distribution is made to the holders of Common
Stock and on a pari passu basis with holders of Series A Preferred Stock and Series C Preferred Stock, the liquidation
preference with respect to their shares plus an amount equal to any accrued but unpaid dividends (whether or not declared) to, but not
including, the date of payment with respect to such shares.
Company Call and Stockholder Put Options.
Commencing on the fifth anniversary of the initial issuance of shares of Series B Preferred Stock and continuing indefinitely thereafter,
the Company will have a right to call for redemption the outstanding shares of Series B Preferred Stock at a call price equal to $15.00,
or 150% of the original issue price of the Series B Preferred Stock, and correspondingly, each holder of shares of Series B Preferred
Stock shall have a right to put the shares of Series B Preferred Stock held by such holder back to the Company at a put price equal to
$15.00, or 150% of the original issue purchase price of such shares. During the years ended December 31, 2021 and 2020, the Company recorded
a put option value accretion of $739,034 and $567,217 respectively.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Voting Rights. The Company may not
authorize or issue any class or series of equity securities ranking senior to the Series B Preferred Stock as to dividends or distributions
upon liquidation (including securities convertible into or exchangeable for any such senior securities) or amend the Company’s articles
of incorporation (whether by merger, consolidation, or otherwise) to materially and adversely change the terms of the Series B Preferred
Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of outstanding shares
of Series B Preferred Stock, voting together as a class. Otherwise, holders of the shares of Series B Preferred Stock do not have any
voting rights.
No Conversion Right. The Series
B Preferred Stock is not convertible into shares of Common Stock.
On November 1, 2019, the Company launched an offering
under Regulation A of Section 3(6) of the Securities Act of 1933, as, amended (the “Securities Act”), for Tier 2 offerings,
pursuant to which the Company offered up to 1,000,000 shares of Series B Preferred Stock at an offering price of $10.00 per share, for
a maximum offering amount of $10,000,000. In addition, the Company offered bonus shares to early investors in this offering, whereby the
first 400 investors received, in addition to Series B Preferred Stock, 100 shares of Common Stock, regardless of the amount invested,
for a total of 40,000 shares of Common Stock. This offering terminated on March 30, 2021.
During the year ended December 31, 2021, the Company
sold an aggregate of 117,297 shares of Series B Preferred Stock for total gross proceeds of $1,172,970. After deducting a placement fee
and other expenses, the Company received net proceeds of $1,087,485. During the year ended
December 31, 2020, the Company sold an aggregate of 231,532 shares of Series B Preferred Stock for total gross proceeds of $2,315,320.
After deducting a placement fee and other expenses, the Company received net proceeds of $2,151,250.
As of December 31, 2021,
there were 758,551 shares of Series B Preferred Stock issued and outstanding and the Series B Preferred Stock balance was made
up of Series B Preferred Stock, net of commissions, totaling $7,185,716 and accretion of put options totaling $1,332,878. As of December
31, 2020, there were 641,254 shares of Series B Preferred Stock issued and outstanding and the Series B Preferred Stock balance
was made up of Series B Preferred Stock, net of commissions, totaling $6,096,855 and accretion of put options totaling $595,221.
Series
C Preferred Stock
On May 24,
2021, the Company filed an amended and restated certificate of designation with the Nevada Secretary of State pursuant to which the Company
designated 47,000 shares of its preferred stock as Series C Cumulative Redeemable Preferred Stock (the “Series C Preferred
Stock”). The Series C Preferred Stock has the following voting powers, designations, preferences and relative rights, qualifications,
limitations or restrictions:
Ranking.
The Series C Preferred Stock ranks, as to dividend rights and rights upon liquidation, dissolution, or winding up, senior to Common Stock
and pari passu with Series A Preferred Stock and Series B Preferred Stock. The terms of the Series C Preferred Stock
do not limit the Company’s ability to (i) incur indebtedness or (ii) issue additional equity securities that are equal or junior
in rank to the shares of Series C Preferred Stock as to distribution rights and rights upon liquidation, dissolution or winding up.
Stated
Value. Each share of Series C Preferred Stock has an initial stated value of $1,000, subject to appropriate adjustment in relation
to certain events, such as recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or similar events affecting
the Series C Preferred Stock.
Dividend
Rate and Payment Dates. Dividends on the Series C Preferred Stock are cumulative and payable monthly in arrears to all holders
of record on the applicable record date. Holders of Series C Preferred Stock are entitled to receive cumulative monthly cash dividends
at a per annum rate of 7% of the stated value (or $5.83 per share each month based on the initial stated value). Dividends on each
share begin accruing on, and are cumulative from, the date of issuance and regardless of whether the board of directors declares and pays
such dividends. Dividends on shares of Series C Preferred Stock will continue to accrue even if any of the Company’s agreements
prohibit the current payment of dividends or the Company does not have earnings. During the year ended December 31, 2021, the Company
paid dividends of $49,292 and due to timing of payments, accrued dividends of $26,960 presented in accrued liabilities on the balance
sheet.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Liquidation
Preference. Upon a liquidation, dissolution or winding up of the Company, holders of shares of Series C Preferred Stock are entitled
to receive, before any payment or distribution is made to the holders of Common Stock and on a pari passu basis with
holders of Series A Preferred Stock and Series B Preferred Stock, a liquidation preference equal to the stated value per share, plus accrued
but unpaid dividends thereon.
Redemption
Request at the Option of a Holder. Once per calendar quarter, a holder will have the opportunity to request that the Company redeem
that holder’s Series C Preferred Stock. The board of directors may, however, suspend cash redemptions at any time in its discretion
if it determines that it would not be in the best interests of the Company to effectuate cash redemptions at a given time because the
Company does not have sufficient cash, including because the board believes that the Company’s cash on hand should be utilized for
other business purposes. Redemptions will be limited to four percent (4%) of the total outstanding Series C Preferred Stock per quarter
and any redemptions in excess of such limit or to the extent suspended, shall be redeemed in subsequent quarters on a first come, first
served, basis. The Company will redeem shares at a redemption price equal to the stated value of such redeemed shares, plus any accrued
but unpaid dividends thereon, less the applicable redemption fee (if any). As a percentage of the aggregate redemption price of a holder’s
shares to be redeemed, the redemption fee shall be:
| ● | 11% if the redemption is requested on or before the first anniversary of the original issuance of such shares; |
|
● |
8% if the redemption is requested after the first anniversary and on or before the second anniversary of the original issuance of such shares; |
|
● |
5% if the redemption is requested after the second anniversary and on or before the third anniversary of the original issuance of such shares; and |
| ● | after the third anniversary of the date of original issuance of shares to be redeemed, no redemption fee shall be subtracted from the redemption price. |
Optional
Redemption by the Company. The Company has the right (but not the obligation) to redeem shares of Series C Preferred Stock at
a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends thereon; provided, however,
that if the Company redeems any shares of Series C Preferred Stock prior to the fourth (4th) anniversary of their issuance,
then the redemption price shall include a premium equal to ten percent (10%) of the stated value.
Mandatory
Redemption by the Company. The Company must redeem the outstanding shares of Series C Preferred Stock on the fourth (4th)
anniversary of their issuance at a redemption price equal to the stated value of such redeemed shares, plus any accrued but unpaid dividends
thereon.
Voting
Rights. The Series C Preferred Stock has no voting rights.
No
Conversion Right. The Series C Preferred Stock is not convertible into shares of Common Stock.
In accordance
with ASC 480-10, the Series C Preferred Stock is treated as a liability and is presented net of unamortized debt issuance costs on the
balance sheet because the Company has an unconditional obligation to redeem the Series C Preferred Stock and dividends on the
Preferred C Stock are included in interest expense.
On June 11, 2021, the
Company launched a new offering under Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings, pursuant to which the Company
is 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 ended December
31, 2021, the Company 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 other expenses, the Company received net proceeds of $5,345,207. The Company 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.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Common Stock
The Company is authorized to issue up to 200,000,000
shares of Common Stock, par value $0.01 per share. As of December 31, 2021 and 2020, there were 12,403,680 and 12,398,580 shares of Common
Stock issued and outstanding, respectively.
Stock Issued for Service
During the year ended December 31, 2021, the Company
issued no stock for services. During the year ended December 31, 2020, the Company issued 50,000 shares of Common Stock to board members
with a value of $32,500.
Stock Issued for Cash
During the years ended December 31, 2021 and 2020,
the Company issued 5,100 and 12,500 shares of Common Stock, respectively, to early investors in the Regulation A offering, valued at $1,377
and $4,185, respectively.
Equity Incentive Plan
In December 2017, the Board of Directors, with
the approval of a majority of the stockholders of the Company, adopted the Manufactured Housing Properties Inc. Stock Compensation Plan
(the “Plan”) which is administered by the Compensation Committee. As of December 31, 2021, there were 706,175 shares granted
and 293,825 shares remaining available under the Plan.
The Company has issued options to directors, officers, and employees
under the Plan. One third of the options vest immediately, and two thirds vest in equal annual installments over a two-year period. During
the years ended December 31, 2021 and 2020, the Company issued 50,000 and 0 options and recorded total stock option expense of $66,015
and $2,370, respectively, inclusive of the stock option expense in connection with the correction to the exercise price as noted below.
During the year ended December 31, 2021, the Company
amended stock option agreements executed in 2019 and 2021 to correct the exercise price to $0.01 rather than $0.27 which increased stock
option expense by $27,550.
The following table summarizes the stock options
outstanding as of December 31, 2021:
| |
Number of options | | |
Weighted average exercise price (per share) | | |
Weighted average remaining contractual term (in years) | |
Outstanding at December 31, 2020 | |
| 656,175 | | |
$ | 0.01 | | |
| 7.7 | |
Granted | |
| 50,000 | | |
| 0.01 | | |
| 9.0 | |
Exercised | |
| - | | |
| - | | |
| - | |
Forfeited / cancelled / expired | |
| - | | |
| - | | |
| - | |
Outstanding at December 31, 2021 | |
| 706,175 | | |
$ | 0.01 | | |
| 6.6 | |
Exercisable at December 31, 2021 | |
| 672,842 | | |
$ | 0.01 | | |
| 6.4 | |
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
The aggregate intrinsic value in the table above
represents the total intrinsic value (the difference between the Company’s closing stock price at fiscal year-end and the exercise
price, multiplied by the number of in-the-money options) that would have been received by the option holder had all options holders exercised
their options on December 31, 2020. As of December 31, 2021, there were 706,175 “in-the-money” options with an aggregate intrinsic
value of $2,040,846.
The following table summarizes information concerning
options outstanding as of December 31, 2021.
Strike Price Range ($) | | |
Outstanding stock options | | |
Weighted average
remaining contractual term (in years) | | |
Weighted average
outstanding strike price | | |
Vested stock options | | |
Weighted average
vested strike price | |
$ | 0.01 | | |
| 519,675 | | |
| 5.9 | | |
$ | 0.01 | | |
| 519,675 | | |
$ | 0.01 | |
$ | 0.01 | | |
| 136,500 | | |
| 8.0 | | |
$ | 0.01 | | |
| 136,500 | | |
$ | 0.01 | |
$ | 0.01 | | |
| 50,000 | | |
| 9.0 | | |
$ | 0.01 | | |
| 16,667 | | |
$ | 0.01 | |
The following table summarizes information concerning
options outstanding as of December 31, 2020.
Strike Price Range ($) | | |
Outstanding stock options | | |
Weighted average
remaining contractual term (in years) | | |
Weighted average
outstanding strike price | | |
Vested stock options | | |
Weighted average
vested strike price | |
$ | 0.01 | | |
| 519,675 | | |
| 7.0 | | |
$ | 0.01 | | |
| 519,675 | | |
$ | 0.01 | |
$ | 0.01 | | |
| 136,500 | | |
| 9.0 | | |
$ | 0.01 | | |
| 45,500 | | |
$ | 0.01 | |
The table below presents the weighted average
expected life in years of options granted under the Plan as described above. The risk-free rate of the stock options is based on the U.S.
Treasury yield curve in effect at the time of grant, which corresponds with the expected term of the option granted.
The fair value of stock options was estimated
using the Black Scholes option pricing model with the following assumptions for grants made during the periods indicated.
Stock option assumptions | |
December 31, 2021 | | |
December 31, 2020 | |
Risk-free interest rate | |
| 0.26 – 1.40 | % | |
| - | |
Expected dividend yield | |
| 0.00 | % | |
| - | |
Expected volatility | |
| 16.03 –273.98 | % | |
| - | |
Expected life of options (in years) | |
| 6.5 | | |
| - | |
NOTE 8 – RELATED PARTY TRANSACTIONS
See Note 6 for information regarding the promissory
notes issued to Metrolina, a significant stockholder, and the revolving promissory notes issued to Raymond M. Gee, the Company’s
chairman and chief executive officer.
In August 2019, the Company entered into an office
lease agreement with 136 Main Street LLC, an entity whose sole owner is Gvest Real Estate LLC, whose sole owner is Mr. Gee, for the lease
of the Company’s offices. The lease is $12,000 per month and is on a month-to-month term. During the years ended December 31, 2021
and 2020, the Company paid $144,000 and $48,000, respectively, of rent expense to 136 Main Street LLC.
During the years ended December 31, 2021 and 2020,
Raymond M. Gee received fees totaling $500,000 and $370,000, respectively, for his personal guaranty on certain promissory notes relating
to the refinancing and acquisitions of mobile home communities owned by the Company. During the year ended December 31, 2021, the Company
also accrued $250,000 for personal guaranty fees owed to Mr. Gee in relation to the Asheboro and Morganton acquisitions that occurred
at the end of December which were paid in January 2022.
See Note
3 for information regarding related party VIEs.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
NOTE 9 – INCOME TAXES
On December 22, 2017, the Tax Cuts and Jobs Act
(the “TCJA”) was enacted to significantly reform the Internal Revenue Code of 1987, as amended (the “IRC”). The
TCJA, among other things, contains significant changes to corporate taxation, including a reduction of the corporate tax rate from a top
marginal rate of 35% to a flat rate of 21%, effective as of January 1, 2018; a limitation of the tax deduction for interest expense; a
limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks,
in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward
indefinitely); and modifying or repealing many business deductions and credits.
The Company has significant business interest
expense; however, the TCJA provision implementing a limitation of the tax deduction for interest expense does not apply to the Company
as it qualifies for the small business exemption. On the 2019 and 2020 tax return, the company elected to take 100% bonus depreciation
deduction available under the new TCJA tax legislation, which applied to qualified property placed in service after September 27, 2017
and before January 1, 2023. This large deduction increased our deferred tax liability and increased our NOL significantly.
On March 27, 2020, the CARES Act was enacted in
response to the COVID-19 pandemic. The CARES Act, among other things, supersedes the changes related to NOLs from TCJA and permits NOL
carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. After December 31, 2020, the limitation
of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks are reenacted.
The Company’s VIEs are single member LLCs. As single member LLCs,
these entities are considered disregarded for income tax purposes and are not included in the Company’s tax return. Therefore, the
VIEs are not included in the tax information presented below.
As of December 31, 2021 and 2020, the Company
had net deferred tax assets principally arising from the net operating loss carry forwards for income tax purposes multiplied by the Federal
statutory tax rate of 21%. As management of the Company cannot determine that it is more likely than not that we will realize the benefit
of the deferred tax assets, a valuation allowance equal to the deferred tax asset has been established at December 31, 2021 and 2020.
As of December 31, 2021, and 2020, the Company had Federal net operating
loss carryforwards of approximately $19,257,499 and $18,446,935, respectively. The change in the valuation allowance for the years ended
December 31, 2021 and 2020 was $1,352,630 and $2,364,875, respectively. The provision to return true up adjustment primarily related to
a depreciation true up on the 2020 return.
The significant components of the current income
tax benefit at December 31, 2021 and 2020 were as follows:
| |
For the Years Ended | |
| |
December 31, 2021 | | |
December 31, 2020 | |
Statutory rate applied to income (loss) before income taxes | |
$ | (383,885 | ) | |
$ | (1,068,482 | ) |
Increase (decrease) in income taxes results from: | |
| | | |
| | |
VIE income | |
| 112,958 | | |
| 451,876 | |
Change in valuation allowance | |
| (1,352,630 | ) | |
| 2,364,876 | |
Provision to return true up | |
| 1,623,557 | | |
| (1,748,270 | ) |
Income tax expense (benefit) | |
$ | - | | |
$ | - | |
The difference between income tax expense computed
by applying the federal statutory corporate tax rate and provision for actual income tax is as follows:
| |
For the Years Ended | |
| |
December 31, 2021 | | |
December 31, 2020 | |
Income tax benefit at | |
| 21.00 | % | |
| 21.00 | % |
Income tax benefit - State | |
| 3.62 | % | |
| 3.63 | % |
VIE income | |
| -7.25 | % | |
| -10.42 | % |
Change in valuation allowance | |
| 86.77 | % | |
| 26.09 | % |
Provision to return true up | |
| -104.14 | % | |
| -40.30 | % |
Income tax expense (benefit) | |
| 0.00 | % | |
| 0.00 | % |
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Deferred income taxes result from temporary differences
in the recognition of income and expenses for the financial reporting purposes and for tax purposes. The effects of temporary differences
that gave rise to net deferred tax assets are as follows:
| |
For the Years Ended | |
| |
December 31, 2021 | | |
December 31, 2020 | |
Deferred tax liabilities: | |
| | |
| |
Depreciation | |
$ | (2,431,793 | ) | |
$ | (761,455 | ) |
Amortization expense | |
| (14,372 | ) | |
| (269,076 | ) |
Other | |
| (584 | ) | |
| (584 | ) |
Deferred tax assets: | |
| | | |
| | |
Operating loss carryforwards | |
| 4,251,516 | | |
| 4,188,512 | |
Gross deferred tax assets | |
| 1,804,767 | | |
| 3,157,397 | |
Valuation allowance | |
| (1,804,767 | ) | |
| (3,157,397 | ) |
Net deferred income tax asset | |
$ | - | | |
$ | - | |
NOTE 10 – SUBSEQUENT EVENTS
Additional Closings of Regulation A Offering
Subsequent to December 31, 2021, the Company sold
an aggregate of 4,291 shares of Series C Preferred Stock in additional closings of the Regulation A offering described below for total
gross proceeds of $4,289,440. After deducting a placement fee, we received net proceeds of approximately $4,004,109.
Warrenville Purchase and Sale Agreement
On November 11, 2021, MHP Pursuits LLC entered
into a purchase and sale agreement with R&S Properties, LLC for the purchase of a manufactured housing community located in Warrenville,
South Carolina consisting of 85 lots and 61 homes on approximately 45 acres for a total purchase price of $3,050,000. On March 9, 2022,
the agreement was amended to extend the closing date to March 31, 2022. As of the date of this report, acquisition of this community has
not yet occurred.
Spaulding Purchase and Sale Agreement
On January 19, 2022, MHP
Pursuits LLC entered into a purchase and sale agreement with Spaulding Enterprises, Inc. for the purchase of a manufactured housing community
located in Brunswick, Georgia consisting of 72 sites and 28 homes on approximately 17 acres for a total purchase price of $2,000,000.
As of the date of this report, acquisition of this community has not yet occurred.
Sunnyland Acquisition
On November 3, 2021, MHP Pursuits LLC entered
into a purchase and sale agreement with Billie Jean Faust for the purchase of a manufactured housing community located in Byron, Georgia
consisting of 73 sites on approximately 18.57 acres and an adjacent parcel of undeveloped land containing 15.09 acres for a total purchase
price of $2,200,000. On January 27, 2022, MHP Pursuits LLC assigned its rights and obligations in the purchase agreement to Sunnyland
MHP LLC, an entity wholly owned by the Company, and Gvest Sunnyland Homes LLC, an entity wholly owned by Gvest Finance LLC, pursuant to
an assignment of purchase and sale agreement. On January 31, 2022, closing of the purchase agreement was completed and Sunnyland MHP LLC
purchased the land and land improvements, and Gvest Sunnyland Homes LLC purchased the buildings. Proforma
financial information for Sunnyland is included in the unaudited proforma combined results of operations in Note 5.
MANUFACTURED HOUSING PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
In connection with the closing of the property,
on January 31, 2022, Sunnyland MHP LLC entered into a loan agreement with Vanderbilt Mortgage and Finance, Inc. for a loan in the principal
amount of $1,760,000 and issued a promissory note to the lender for the same amount.
Interest on the disbursed and
unpaid principal balance accrues as follows: (a) from the date funds are first disbursed at a rate of 5.37% per annum, interest only for
the first thirty-six months, and (b) on February 10, 2025, interest on the disbursed and unpaid principal balance accrues at a rate 5.21%
per annum until maturity. Interest is calculated on the basis of a 360-day year and the actual number of calendar days elapsed. Payments
began on March 10, 2022 and continue the 10th of every month until maturity on February 10, 2027. Sunnyland MHP LLC may prepay
the note in part or in full at any time if it pays a prepayment premium calculated in accordance with the loan agreement.
The note is secured by a first
priority security interest in the property and is guaranteed by Raymond M. Gee. The loan agreement and note contain customary financial
and other covenants and events of default for a loan of its type.
Clyde Purchase and Sale Agreement
On February 10, 2022, MHP
Pursuits LLC entered into a purchase and sale agreement with Harold and Brenda Allen for the purchase of a manufactured housing community
located in Clyde, North Carolina, a part of the Asheville Metropolitan Statistical Area, consisting of 51 sites and 51 homes on approximately
9 acres for a total purchase price of $3,050,000. As of the date of this report, acquisition of this community has not yet occurred.
Solid
Rock Purchase and Sale Agreement
On February
25, 2022, MHP Pursuits LLC entered into a purchase and sale agreement with K10 Enterprises LLC for the purchase of a manufactured housing
community located in Leesville, South Carolina, consisting of 39 sites and homes on approximately 11 acres for a total purchase price
of $1,700,000. As of the date of this report, acquisition of this community has not yet occurred.
Charlotte
3 Park Note Repayment
On February
28, 2022, the Company borrowed $700,000 from Gvest Real Estate Capital, LLC, increasing the outstanding balance on the revolving promissory
note described above. On March 1, 2022, proceeds from the revolving promissory note were used to repay the Charlotte 3 Park MHP LLC $1,500,000
note payable upon its maturity.