Q4 2019 Earnings Call
Be able to monetize this value through the refinancing of these communities in the coming years.
We will.
I am pleased to report that in 2019 total income Rose to $147 representing an increase of 13% over 2018.
This growth was driven by a 13% increase in rental and related income and a 14% increase in sales a community net operating income has grown 267 million dollars an increase in 10% over 2018.
This is the ninth consecutive here that we have delivered over 10% rental and related income growth and the fourth consecutive year that we have delivered sales growth of over 10%
our ability to maintain double-digit growth and revenue and sales year after year continues to validate our business plan.
Our increased income is attributable to our Acquisitions and the success of our rental home program during the year. We added a total of 882 rental homes to our portfolio this brings our total rental home portfolio to 7400 Holmes.
As of year-end the occupancy rate on a rentals was 92.3% which is in line with where it has been for the past several years. Our average monthly rent for home is now $765 off representing an increase of 3.1% over the prior-year.
Rental home program is a key component of our business plan allows us to quickly and efficiently increase occupancy resulting in improved Community operations. We are satisfied with the length of time residents are staying in the homes and they were generally left in good condition upon move out. You have a waiting list for a rental homes that many properties throughout our portfolio.
We continue to execute on our growth strategy by acquiring for communities containing 1500 sites for a total purchase price of approximately 56.2 million dollars off. These communities are well located in markets that have been experiencing strong demand.
These communities are turnaround properties that we purchased at a blended occupancy rate of only 62% as we Implement our business plan and integrate these communities into our portfolio. We expect to increase occupancy income and value the acquisition Market remains extremely competitive cap rates remain near all-time lows. We do have offers out on several projects and anticipate continuing are opportunistic growth strategy through additional value-added acquisitions.
Property portfolio continues to deliver strong results same property income for the year was up 7% over 2018 and expenses were up 7.6% resulting in same property and life growth of 6.4%
increased expenses are primarily related to the turnaround work being completed at our recent acquisition. These expenses will result in higher quality and better maintained communities.
We were able to obtain same property rent increases of 3.6% in 2019 bringing our average site rental rates of $457 or same property tax rate improved a hundred sixty basis points to 83.8% this translates to an increase of 333 revenue-producing sites.
We remain encouraged by the year-over-year growth of our sales operation gross sales for 2019 were $18 representing an increase of 14% over 2018 month. So the total of $299 homes of which $135 new home sales and 164 were used home sales. Our average sale price was $60,000 as compared to $53,000 in the prior-year.
Grossmont
Percentage and 2019 was 28% as compared to 26% in 2018. We have several Community expansions in strong sales markets coming online that should drive additional sales tax. We believe we are well-positioned to grow our sales profitability in 2020.
Our expansion program is progressing nicely we have now completed a total of 90 sites that are all Rental Community. Memphis Blues 39 sites were completed in 2018 and full fight with him one year 51 sites were recently completed in 2019, and we expect these sites to also lease up within a year.
We have three other expansions currently being developed which will contain a total of 191 sites. These sites are expected to be completed in the second quarter. We are working to obtain approvals for 650 sites and 2020 moving the hundred ninety-one sites currently being developed. We expect to deliver approximately 350 completed expansion sites. These newly developed expansion sites will allow us to continue our sales and rental growth and communities that have consistently produced excellent results.
We fund our growth with the issuance of new capital including the issuance of preferred stock. We have a 52 year history of profitably deploying the new capital into new acquisitions expansions Capital Improvement in a rental homes issuing preferreds has a short-term negative impact on ffo. But as we invest the proceeds into our platform we were able to increase nav and ultimately our earnings a 100 million dollars of new preferred raised in 2019 reduced ffo by approximately 12 cents per share. Most of this capital is not deployed until the fourth quarter ffo for 2019 was 63 cents per share heading back the $0.12 would increase our earnings to seventy-five cents per share by focusing solely on ffo per share. The value created in our portfolio is not being reflected off that value can be measured by a 6.4% increase in same property and which translates into an eighty million dollar increase in community value or approximately $2 per share.
We see.
There's a growth company and traditional Reliance on per share ffo does not work as the sole way to evaluate our performance and to value our company.
Looking ahead to 2020. We believe that we are well-positioned to substantially grow our earnings. We have budgeted a 4% site rent increase for 2020 and we expect install and rent an additional 800 to 900 rental home. It should result in total revenue growth of over twelve million dollars the community net operating income should increase by six million dollars or off our sales operation also has the potential to increase ffo further in addition. We have 95 million dollars standing in series be 8% Perpetual preferred stock that is compatible in October. We are confident that we can replace this capital of the substantially lower rate and thereby generate significant savings that will help Drive per-share earnings growth.
This is something that we are already working on.
Would like to take this opportunity to thank our dedicated. Umh team for all their hard work. We are proud of the results achieved by our team and remain optimistic about the prospects for our company and our industry now, I'm Anna will provide you with greater detail on a results for the quarter and for the year.
Thank you, Sam funds from operations or ffo was $7 or $0.17 per diluted share for the fourth quarter of 2019 compared to seven point four million dollars or $0.19 per diluted share for the prior-year.
Normalized ffo which excludes realized gains on the sale Securities and other non-recurring items was seven point 1 million dollars or $0.17 per diluted share for the fourth quarter of 2019 compared to seven point four million dollars or $0.19 per diluted share for the party year. For the full year 2019 ffo was twenty four point six million dollars or $0.61 per diluted share compared to $27 or $0.72 per diluted share for 2018 normalized ffo. What's 25.2 million dollars or $0.63 per diluted share for 2019 compared to twenty seven point five million dollars or seventy-four cents per diluted share month for 2018.
these decreases were
Beverly attributable to the impact of our raising capital and a reduction in dividend income from our Securities portfolio sequentially normalized ffo increased 13% wage compared to the third quarter.
Rental and related income for the quarter was thirty three point six million dollars compared to twenty nine point six million dollars a year ago representing an increase of 14%
for the full-year rental and related income increased from 113.8 million dollars in 2018 to a hundred twenty eight point six million dollars in 2019 and increase of 13% These increases were primarily due to community Acquisitions the addition of rental homes and the growth and occupancy community and not increase by 16% for the quarter from fifteen point four million dollars in 2018 to 17.8 million dollars in 2019 for the full community and increased from 60.9 million dollars in 2018 to 66.9 million dollars in 2019 and increase of 10%
This is the ninth consecutive year.
We have to achieve double digits year-over-year noi growth.
As we turn to our capital structure at your end. We had approximately $457 in debt of which $373 million dollars with community-level mortgage step and eighty four million dollars were loans payable.
82% of our total debt is six straight the weighted average interest rates on our mortgage debt with 4.14% at year end 2019 compared with 4.29% in the prior year. The weighted average maturity on our mortgage debt was six years at 2019 compared to 6.3 years a year ago.
During the year, we issued 100 million dollars of our 6.75% Seriously Perpetual preferred stock you Mage further increased our liquidity by implementing a preferred ATM program.
Yes, we issued 650 1,000 shares of our 6.375 series D cumulative redeemable preferred stock for net proceeds of approximately 15.9 million dollars after offering costs under our ATM program subsequent to year-end. We sold an additional two point six million shares of our series D preferred stock generating net proceeds of 63.1 million dollars. We will be using these proceeds for General Corporate purposes, which includes the purchase of manufactured homes for sale at least two customers expansion of our existing communities Acquisitions of additional properties and paying down our lines of credit on a temporary basis.
during the
We have also raised 31.5 million dollars throughout dividend reinvestment and stock purchase plan.
At the year-end. Umh have a total of $405 In Perpetual preferred Equity. Our preferred stock combined with an equity market capitalization of $657 and $457 in debt results in a total market capitalization of approximately 1.5 billion dollars at home representing an increase of 28% over the prior year.
A credit standpoint our net debt to Total Market capitalisation with 29% our net debt plus Securities to Total Market capitalisation was 22%
Oh Annette that to adjusted ebitda with 6.6 times. I'll net that plus Securities to adjusted ebit up with 4.9. * our interest coverage was 6.5 times and I'll fixed charge coverage was 1.5 times.
From a liquidity standpoint. We ended the year with twelve million dollars in cash and cash equivalents $60 available on our credit facility and $14 available on our revolving lines of credit for the financing of home sales and the purchase of inventory subsequent a year-end the company paid down fifty-four million dollars on our lines of credit.
We also had $116 in our Securities portfolio encumbered by thirty-eight million dollars in margin loans, which was paid down to three million dollars subsequent to year-end dead.
portfolio
Represents approximately 9% of our appreciated assets. We limit our portfolio to no more than 15% of our appreciated assets with the exception of investing out dividends and Mama 3. We are committed to not increasing our investments in the Securities portfolio.
Without strong financial position and access to the capital markets. We are well-positioned to continue our growth initiatives and now let me turn it over to jeans before we open it up for questions.
I am extremely proud of the company that we have built over at fifty two year history a decision to invest in manufactured housing almost years ago has proven to be wise affordable housing is possibly the most critical domestic issue facing our nation today. You want to make this perfectly positioned to be an integral solution to this affordable housing crisis. We will continue to work to provide unsubsidized affordable housing in each market that we serve.
and then age
Environmental social and governance concerns are highly valued. You were made should become a preferred advancement for institutional investors. What about housing? Is that the number one consumer? Socially our industry is finally getting the attention that it deserves from legislators that are looking for solutions to this crisis this past summer. You were mates was founded to participate in the inaugural Innovative housing showcase sponsored by Hud. We set up a manufactured home on the National Mall in Washington DC about this in bed increased awareness about our product on a national level. I the secretary Ben Carson and countless members of Congress along with their staffers and the general public we're able to see first-hand. What a great product we have since this event secretary course and has continue to Advocate. The manufactured housing is a pointer dog.
solution to the affordable housing crisis
Business plan has evolved over the years but generally Remains the Same are conservative stewardship of capital and build long-term shareholder value. The best form of governance is Dead return of hard-earned capital to the shareholders. You amaze has always accomplished this in the form of a very reasonable dividend.
Umh as a capital stack that includes about $470 million dollars in Perpetual preferred requiring over $32 million and preferred dividends per year.
This Preferred Capital has allowed us to more than triple the size of the company since 2010.
Historically a blended 6.8% cost of capital is relatively inexpensive. We are living in a world with negative interest rates and a 10-year treasury yield at a record lows of near 1% replacing our 8% Series be preferred Equity with lower-cost at or replacing it with high multiple. Common shares will result in improved results.
Finance
Terms kind of quest be different in the future raids can be the same as now where they can be more expensive you amaze can plan for it. But not as sure that the favor will be financing conditions will occur. I prefer this call. We'd look forward to continuing to deliver exceptional results for our shareholders for many years to come.
Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble the roster.
The first question today comes from Barry Oxford of d a Davidson, please. Go ahead.
Great. Thanks. You see when you look at your sales with the low interest rate. Do you think you can do, you know a fair bit more in 2012 versus nineteen or not necessarily know we we think the sales will grow primarily because of the well-located expansions predominantly, the expansions are in the Nashville Market. They're virtually complete people are very excited about those sales and there's waiting list there. So we do anticipate strong sales growth again in 2020 Great and when we thinking out kind of you know longer-term in this expansion has been you know, highly successful instead of do you still have plenty of other properties which to do this? I mean, we're not we're not going to lose this growth from the company any time soon.
No, we have 16.
Hundred acres to expand which translates to about four units per acre. So, you know approximately 6400 home sites to build in the future. And in addition to that though, you know, we realized a long time ago the most efficient way to have vacant Lots in inventory was to buy communities with vacancy cuz you know exactly what do you have available and exactly what they cost to obtain and we have approximately four thousand vacant sites today that we can continue to fill with both rental homes and sales rep and we were very optimistic about both the rental homes and the sales gray and last question from you saying you still find an Acquisitions just a little too pricey right now.
Well, we have I'm going to let Brad answer that but we have some Acquisitions. Go ahead. Right? Yeah. So the acquisition Market does remain extremely competitive. There's no doubt about it off. We're seeing value at Acquisitions trading at what used to be stabilized prices, you know at five and half percent 6% cap rate stabilized deals in our markets are trading 5% or below. So it has been a difficult that being said we do have two communities. We're working on getting under contract right now. That's about three hundred fifteen sites. I think realistically we're looking to do twenty-five million in a club in 2020, you know, it been opportunity does become available. We will be ready to take advantage of it, but just given what we're seeing in the market. I think that's a realistic Target.
Great. Thank
for the color guys
The next question today comes from Rob Stevenson of Jenny, please go ahead good morning guys. So the 25 million that you were talking about an acquisition would be those to the doctor's office press release those two are at a smaller dollar amount but we do have our eyes on several other Acquisitions. We're waiting to see what happens in the market right now before pulling the trigger on those but I do believe that come to second quarter will be able to report some improve the growing acquisition pipeline. Okay. What is it costing you money per rental home including the the setup?
It's approximately fifty thousand dollars. It rises a small percentage each year, but that's approximately the right number. Okay. So if I look at the high end of your choice rentals for twenty twenty, so 45 million of spend on rental homes another $25 or so on Acquisitions get you to about seventy how much you guys how much is the expansions that you guys are planning to do in twenty-twenty going to run you? Yeah. So figure about seventy thousand dollars per site and Thursday. It's about $25 million budgeting to expand.
You said?
Twenty million twenty five twenty-five million. Okay, so 45 million for rental homes $25 million for Acquisitions. And you said another $25 million for expansion. So that gets you pushing a hundred million or so of capital. Hold on if I heard correctly your number on the rental sounded low to me your 800 units at 50,000. So that's forty million there 45. Okay. You got the right numbers here. Okay. So yes, go ahead. So I just I I just wanted to compare that so you guys have raised close to a hundred thousand dollars in the first two months of the year via the series D and and the drip or a reinvestment program. And so, you know, I just wanted to figure out you know, if you've got a hundred million of capital that you need for this year. You've already raised essentially that like whether or not there was what else you were going to need to raise capital for in 2020 June.
other than incremental acquisitions
So don't forget the capital budget approximately ten million dollars the financing of home sales that we financed. It's slightly over 50% of all home sales, which that number be somewhere above ten million dollars and our big one will be the call of our Series be preferred stock in October, which is 95 million months. Okay, 8.37% and we anticipate especially the way rates are going and not that we can guarantee it as Jean had said we anticipate refinancing that at a lower dollar amount either through the stock preferred the common stock preferred stock that you know, whichever it may be which will give us the bed a Capital stock. Okay, you guys have talked in the past about taking some of the Securities portfolio to redeem the series be is that still on the table or you thinking that now you're just going to yep.
Said with either a new series a preferred or something.
Combination of debt and Equity. The first thing I'm trying to do is get a loan against a security sport for you. I think we only owe three million against that now and it's over a hundred thousand and I'd like to borrow 50 million against that and then I need another 45 million. I can pay off the preferred and we have 266 free and clear. We have three hundred fifty million in home screen and clear it so I think would be able to pay off the the 8% preferred on October 20th, and we're we look forward to doing it.
Okay, so just to be clear the plan is either to use leverage on the Securities portfolio rather than the equity from the Securities portfolio to fund that yeah. I don't see them in stock Fielding 7% to pay off an 8% preferred. I'd rather borrow the money at 2% or 3% and pay off and 8% preferred. Okay, and then the acquisition you guys are looking at now. These are the sort of typical value-add we're sub-optimal occupancy. You're going to have to clean them off a few sites and they'll dock of zeal initially drop it off start adding rental units and bring it back.
generally
Yes, it's accurate again. I don't want to get into too many details as they're not under contract yet, but I will say that one of them has vacant sites, but there really aren't too many homes to be removed. The other one is not typical of our opposition program. Will there will be a reduction in occupancy before I move forward. Okay, and then last one for me on the rental units if you guys decided to ratchet up to you know twelve or something of that nature if there was demand for that is their supply to be able to get that get them delivered get them set up at a reasonable period of time or are you sort of limited by the the the market at this point to some extent there is not a problem, you know at this moment, although I do hear that there's some problem getting.
Some of the supplies that manufacturers need as well as delays was set up through but all of that by the end of the year, we'll add our 800 to 900 rental units, but the single most important point of the whole call log is the years we've been doing these rental homes. It only began in about 2011 for us about 2009 for Sun Communities. They're achieving greater and greater acceptance. We're maintaining 95% rental occupancy. We're making traction with Fannie Mae and others that we have created the best affordable housing product. It's the rental home and the manufactured housing communities and the manufacturers have done everything they can do to build us a great house at a great price range. Were you using engineer's Landscape Architects professional planners to build great rental home communities and the last hurdle that needs to be jumped. Is that the loan
for developing rental home
Communities it's a product that really does not exist today and we are working on it every day and getting very close to developing this with Freddie Mac at this moment off and and doing so will reduce your cost of financing rental homes from the 6 and 3 days preferred that we use hopefully to the same rates Apartments. Hey, but certainly 4% and we we have em hoi joining the national Apartment Association the multi-family Housing Association were trying to have our rental home accepted as any other form of multi-family housing and doing so
Could generate eight million dollars per year in new income to us through just reduced interest costs. So there's nothing huge or we can do when we're working on it every day. Okay. Thanks.
Again, if you have a question, please press * then 1 the next question comes from Greg. Kucera, please go ahead.
Hey, good morning. Um wanted to talk about submetering. Can you give us an update on on sort of where you are in regard to that as we enter twenty-twenty and and sort of the plan for 20 20 may be how many units are you expect to complete?
Hi, Daniel, so we will be in.
You probably installing meters at 4 community.
That that would be so for 2018 and 2019 the The Meters that we already installed specifically for 2019. The leases are just starting to get into effect. So a lot of them are in the Tennessee region or water and sewer. We're particularly expensive and we anticipate wage for the meters that we installed in 2018-2019. It's 20-22 have annualized Savings of around three hundred thousand.
Got it. And and when we go ahead, I'm sorry. That was a good time to mention for ESG. How much we we reduced people's water usage. What do you see that so long for the communities where we installed the meters comparing from December the December 5th bill of 2019 to the December bill of 2018, We are saving leave with five hundred thousand gallons. Yeah. Five hundred thousand gallons a month which will and analyze the six million gallons a year and I think with the communities that we just got them installed at in Tennessee. I think we'll see even more savings so
Got it. I guess that was going to circle back on that to you or your same-store operating expenses, which were really pretty limited here in the in the fourth quarter. And I guess was that you know, was that primarily attributable to you know savings on the Utility side particularly water or any color would be great that helps but the biggest increased expense was tree removal during the year. There's article about the emerald ash borer in the Northeast and how it would have economic impact and it affect did have economic impact driving our tree removal cost from under five hundred thousand to a million dollars and we believe we completed the necessary tree removal caused by that and what happens is live large trees that you know are near house.
Those trees died because of this ash borer and they needed to be removed immediately. And we removed them immediately which resulted in substantial increase costs. Once they're removed. They're gone forever. I think we've taken care of that.
and
Just to ask for fourth quarter. There was also a week because that was done during the first three quarters for the fourth quarter of the reason the reduction in the repairs and maintenance and tree removal off as compared to last year.
Got it. Okay, that makes sense. Yeah, I wanted to Circle back to sales understanding that you guys had you know had some expansions in increased investment in in selling centers off, you know volume did decelerate a bit in fourth-quarter certainly relative to last year and I think you know much of the earlier in the year, you know, but but pricing was up I guess did were you selling a higher mix dead higher cost makes of homes or or is the market bearing you being able to push pricing that much higher here in the fourth quarter. So for the past two years new home sales have grown no more than overall sales and new home sales are at higher prices. So I believe over the past two years. New home sales are up new home sales were up 20% last year or the prior year and they like Sam said they are at a higher price so that UPS our overall average sales price and and we believe the new home sales growth will continue because of the expansions
Got it. And and one more for me just kind of circling back to to first quarter and and traffic patterns. I know you know seasonally it's you know, you start to see things pick up and traffic has been strong, but I'm I'm curious if there's been any sort of deceleration here in February, you know, particularly sort of news flow surrounding, you know coronaviruses picked up or you know are people still coming in with is the same page. Maybe they were earlier in the quarter. So so we actually checked with every regional manager. There is no decline due to the good weather. We're busier than ever nobody in any of our communities that we know of has lost a job or had less work because of this coronavirus we've we've had no changes in occupancy what we've we've been off to a very strong start to the years since he actually for the first two months of the year. We're up a hundred and fifty units in occupancies, which you know, I think for the year last year we were up about 330.
Okay, that's it for me. Thank you.
This concludes our question-and-answer session. I would like to turn the conference back over to Samuel Andy for any closing remarks.
Thank you operator. I would like to thank the participants on this call for their continued support and interest in our company as always Jean and I are available for any follow-up questions. We look forward to reporting back to you and met with our fourth quarter 2020 results. Thank you.
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