Q2 2020 UMH Properties Inc Earnings Call
Good morning, and welcome to you and H. properties second quarter 2020 earnings Conference call.
All participants will be in listen only mode.
Should you need assistance. Please take note conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions.
To ask a question you May press Star then one on a touchtone phone.
Withdraw your question. Please press Star then too.
Please note this event is being recorded.
It is now my pleasure to introduce your host Ms. Nelli Madden director of Investor Relations. Thank you Ms. Ma'am you may begin.
Thank you very much operator, you make missions to the 10-Q lets me frogs as just see yesterday, we have five and then we'll get that second quarter supplemental information presentation.
The supplemental information presentation, along the dark you are available on the company's website you MH that's right.
I would like to remind everyone that certain statements made during this conference call return Lucky circle. So maybe you forward looking statements within the meaning of decided she can you just litigation is for much of 1995.
The forward looking statements that you make when this call I'll be on our current expectations and involve U.S. risks and uncertainties.
Although the company believes expectations reflected in the forward looking statements are based on reasonable assumptions. The company can provide no assurance that its expectations will be achieved.
Risks and uncertainties that could cause actual results to differ materially from its fixation.
He felt in the company's second quarter 2020, I mean really since filings with the Securities and Exchange Commission.
The company disclaims any obligation to update its forward looking statements.
In addition, during today's call, we will be discussing non-GAAP financial metric.
The Conservations of these non-GAAP financial metrics to the comparable gift financial metrics as well that's explanatory and of course line, which are included in our earnings release, a supplemental information not our historical HCC filings.
Having said that I would like to introduce management's with us today.
In General you Chairman.
And I believe you President and Chief Executive Officer.
And that's true Vice President and Chief Financial Officer.
With that Vice President and Chief operating Officer.
You like in my script themselves kept some markets and Daniely <unk> Vice President.
It is now my pleasure during the call over to your matrix, President and Chief Executive Officer, Samuel name with you.
Thank you very much Nellie we're pleased to report our results for the second quarter ended June Thirtyth 2020.
And discuss the impact that the koeppen 19 pandemic has had on our operations. Although the pandemic has had a negative impact on many businesses and industries throughout the nation. We are pleased to report it it's not materially impacted ullem h.'s rent collections and high occupancy.
Our rent collections are in line with pre pandemic levels site in the home rent for the quarter is now 98% collecting rent collections remained consistent to pre pandemic figures at 95% collections for the month of July this year and last.
Becoming expiration of the unemployment benefits will be indicative of the truth strength of our collections.
Less than 100 presidents have elected to enter into a payment agreement with us.
Our residents recognize that we provide the highest quality affordable housing in any market that we operate it.
Our communities are reporting strong demand in fact, the migration of the population away from cities and out of apartment is further increasing demand at our locations.
As a result, our occupancy rates continue to rise at a rapid pace.
Same store occupancy is now 85.8% and we have filled 550 sites year over year.
Despite delays close but pandemic, we're on track to fill 750 to 800 rentals this year.
We continue to complete capital improvements and expansions at our communities.
Moving onto our results for the second quarter normalized FFO was 17 cents per diluted share as compared to 14 cents in the prior year period, and 15 cents in the first quarter of 2020.
This represents an increase of 21% and 13% respectively.
Rental and related income for the quarter increased 12% over last year.
Our operating expense ratio decreased from 47.7% in the second quarter of last year to 44% currently.
Our strong income growth paired with a reduction in our operating expense ratio resulted in an NOI growth of 19% quarter over quarter.
Our long term business plan continues to drive earnings growth well generating increased property values.
Our same property portfolio continues to perform exceptionally well our same property occupancy rate improved 250 basis points to 85.8% from the same quarter last year. This translates to an increase of 550 revenue producing sites year over year.
Same property NOI increased 14% for both the second quarter and year to date.
This is the third quarter in a row that we have delivered double digit same store NOI growth.
These strong results are directly correlated to the success, we have had at our value added communities. Our team has done an incredible job finding communities that were underperforming identifying the problems and implementing a plan that creates improved community operating result, the results of this business plan are now being recognized in our.
Financial statements and increased property values will be realized by financing, our free and clear communities and refinancing our encumbered properties.
The rental home program continues to perform very well.
Order and we owned approximately 7800 rentals year to date, we have added 367 rentals as compared to 336 last year. We remain on track to add 750 to 800 rental homes to our portfolio. This year.
At quarter end or rental home occupancy was 95.2%.
Rental homes are the most efficient way to fill the vacant sites acquired through our turnaround acquisitions generally we find that rental home tenants are reliable tenants that pay the rent on time and take good care of the home.
Our team has done a great job installing in renting 800, new homes, a year and turning over homes in a timely fashion.
Rental homes and manufactured housing communities are the future of affordable housing.
Gross sales for the quarter were $5 million, representing a decrease.
14% over the same period last year, our sales for the quarter were negatively impacted by the stay at home orders issued in March and the inability to show homes in person.
Given the difficult circumstances, we are satisfied with the performance of our sales operation.
We believe that its business returns to normal throughout the remainder of the year. Our results will improve we have several expansions coming online in good sales markets that should drive improved sales results. Our sales centers are also reporting increased traffic in demand.
The development of our expansions continues to progress we expect to complete the development of 191 sites. This year. In addition in the next 12 months, we expect to obtain approvals on approximately 900 sites.
We should develop about 450 of these approved site and the next 18 months. These newly developed sites will allow us to continue our sales and rental growth at communities that have consistently produced excellent results.
Subsequent to quarter end, we closed on the acquisition of a 147 safe community in Pennsylvania for a total purchase price of $3.3 million were $23000 per site.
This community was approximately 56% occupied at closing it is in good condition and should perform well with the implementation of our sales and rental program.
We have one community in our pipeline, which is expected to close during the third quarter. This community is located in New York and contains 163 site of which 69% are occupied.
The purchase price is $4.5 million or $28000 per site.
The acquisition market remains extremely competitive pandemic has proven the resiliency of the manufactured housing asset class.
As a result more investors continue to chase the same properties further compressing cap rates.
Our properties and portfolios in our markets have closed and commanded going in cap rates of 4% or less and prices of 50000, a site or more.
You will make excels at turnaround communities, we continue to seek properties that will enable us to implement our business plan and drive meaningful value creation.
We continue to make progress financing a portfolio of some of our free and clear communities with approximately $100 million of approximately 3% TSC mortgage debt.
This would allow us to redeem $95 million over 8% series B preferred stock generating additional FFO for common shareholders of approximately 11 cents per share hanging only.
You will make is also working with the Gses to pioneer the recognition of rental manufactured homes and communities as rental housing that should be entitled to the same financing is traditional apartments.
Further success in obtaining that recognition would allow us to finance approximately $310 million of rental homes that were purchased with preferred stock reducing our cost of capital.
We're also working with a bank to obtain a line of credit on a rental homes that would allow us to tap into the rental equity on our balance sheet at rates close to prime.
As we refinanced our capital stack and continued to improve our operating results. We have the potential to drive significant earnings growth throughout the rest of this year and into 2021.
By executing on these items, we expect to make significant progress in reducing our payout ratio, which we anticipate will be below 100% in 2021.
I would like to take this opportunity to thank our dedicated you MH team for all their hard work, we have been laying the foundation for great results for many years that foundation is so strong we are able to report these excellent results. Despite the terrible tragedy of coated and now and we'll provide you with good.
Later detail on our results for the quarter and for the year.
Thank you Sam normalized AFFO, which excludes realized gain on the sale of securities and other nonrecurring items was $7.1 million was 17 cents per diluted share for the second quarter of Twentytwenty compared to 5.7 million dollar.
Or 14 cents per diluted share for the prior year period, and $6.1 million or 15 cents sequentially.
We continue to deploy the capital raised in the first quarter, we expect to continue to improve our AFFO per share metrics.
We have already announced we plan on coin al 95 million dollar CVP perpetual preferred stock in October.
Generating savings of approximately 500 basis points.
Or about 11 cents per share.
Running this quarter's numbers with the new capital structure would result in AFFO per share of 19 cents to 20 cents.
Rental and related income for the quarter with $35.1 billion compared to $31.4 million a year ago.
Representing an increase of 12%.
Community NOI increased by 19% for the quarter from $16.4 million in 2019.
To $19.6 million in Twentytwenty.
These increases are attributable to our acquisition.
Rent increases the success of our rental home program as a reduction of our operating expense ratio.
As Sam mentioned, our operating expense ratio improved from 47.7% for the second quarter of 2019% to 44% for the current quarter.
Well the six months, our expense ratio decreased from 48.5% to 44.6%.
Reduction in our expense ratio is car related to the reduction in expenses at our value added acquisitions.
At quarter end, how portfolio average monthly site rent increased by 2.5%.
$454 over the same period last year.
Average monthly home rent increased by 3.1%.
$777 over the same period last year.
Same property income for the second quarter increased 7.2% over same period last year, while expenses decreased by 1.3%.
Resulting in same property NOI growth of 14.2%.
Sales of manufactured homes decreased 14% for the quarter from $5.8 million in 2019.
To $5 million in 2020.
We sold a total of 82 home of which 34, four new home sales and 48, well used home sales.
We anticipate that sales will improve at the impact of the virus is we do.
As we turn to our capital structure at quarter end, we had approximately $436 million in debt.
Of which $370 million with community level mortgage debt and $66 million was loans payable.
85% about total debt is fixed rate.
The weighted average interest rate on our mortgage debt was 4.14% at quarter end.
Compared to 4.29% in the prior year.
The weighted average maturity on our mortgage debt with 5.5 years at quarter end compared to 5.8 years a year ago.
At quarter end, you make had a total of $469 million in perpetual preferred equity.
Our preferred stock combined with an equity market capitalization of $534 million, an hour $436 million in debt results in a total market capitalization of approximately $1.4 billion at quarter end, representing an increase.
A 15% over the prior year period.
From a credit standpoint, our net debt to total market capitalization was 30%.
Our net debt securities to total market capitalization was 23%.
Our net debt to adjusted EBITDA was 5.6 times.
Our net debt securities to adjusted EBITDA with 4.4 times.
Our interest coverage with 4.2 time.
Fixed charge coverage was 1.5 times.
From a liquidity standpoint, we ended the quarter with $11 million in cash and cash equivalents.
$60 million available on our unsecured credit facility with an additional $50 million potentially available pursuant to an accordion feature.
And $32 million available on our revolving lines of credits for the financing of home sales and the purchase of inventory.
We also had $92 million in our securities portfolio encumbered by $33 million in margin loans.
This portfolio represents approximately 7% about undepreciated assets.
We let me now portfolio to no more than 15% about undepreciated assets.
With the exception.
Investing out dividends in Monmouth real estate.
We are committed to not increasing our investments in the weeks securities portfolio.
We continue to work on providing the company with additional financial flexibility.
We have implemented both a 100 million dollar common ATM program and subsequent to quarter end, a new 100 million dollar preferred ATM program.
The new preferred ATM program replaces our existing preferred ATM program, which raised net proceeds $63.1 billion doing 2020.
$79.1 million since its adoption in October 2019.
These programs will allow the company to Opportunistically access the capital markets.
To date, we have not sold any shares under the common ATM program for the new preferred ATM program.
We have also amended and extended our revolving line of credits for the financing of homes, increasing total availability of $15 million to $20 million and we do think the interest rate by 25 basis points to price with a floor a 3.25%.
As Sam mentioned, we continue to make progress on the financing of a portfolio of free and clear communities with fixed rate mortgage debt at rates of approximately 3%.
Bettering proceeds of approximately $100 million.
We're also in discussions with several vendors to create a credit facility utilizing our rental home as collateral with favorable pricing.
We plan to use resources of capital to redeem that eight cents do we see perpetual preferred stock.
Generating approximately $5 million of additional AFFO or about 11 cents per share annually.
These sources of capital will also allow us to continue to invest in our rental home program.
Capital improvements.
Mansion and additional acquisition further improving our operating results and the quality of our portfolio.
And now let me turn it over to team before we open it up for questions.
The manufactured housing industry has performed incredibly well over the past few months.
I think good industries with devastated by the impact of the shutdowns and stay at home orders have had on the economy.
Fortunately for you I'm age quality affordable housing is a necessity doing any part of the economic cycle.
Our communities are seeing increased demand occupancy rates are rising and our community so embedded condition than ever before.
This performance has given us the unique opportunity to obtain long term debt at low rates to restructure our capital stack.
My calling out 8% series B preferred we anticipate savings of 5 million or 11 cents per share annually.
After the preferred call. Your major we'll have 374 million per foot outstanding at a blended interest rate of 6.6%.
Oh this is callable by 2023.
If we can obtain capital so a combination of equity debt preferred at 4%, we can generate annual savings of approximately $10 million per year with 24 cents per share.
You amazed has the potential to end wasn't a dollar per share in the next three years just by restructuring capital stack at the same time, we continue to grow the company's through acquisitions expansions and the infill a bacon side.
We have the potential to significantly increase earnings and ultimately how accurately market capitalization.
Finally in response to the pandemic the United States is created vast amounts of money the possibility of inflation is very real.
A 50% leverage we unless they've been provides the invest as a 300% gain on equity if asset values double.
It requires 12 years for 6% inflation to double asset values.
Our portfolio of committed is already substantially increasing value because of the improvements we have made at our value added acquisitions. The combination of inflation reduced interest rates scale and improved operating results as the potential to substantial price appreciation, but companies shareholders.
We will now be happy to take your questions.
[noise]. Thank you we will now begin the question and answer session.
Ask a question you make press Star then one on your Touchtone phone.
If you are using the speakerphone, please pick up your handset before pressing the king.
To withdraw your question. Please press Star then too.
At this time, we'll pause momentarily to assemble our roster.
Okay.
Our first question was submitted in writing due to the power failure from Rob Stephens at Janney and the first part of his question is is the 11 cents earnings pickup you speak up in the earnings release predicated on swapping out the series B preferred fruit for similar TSC debt at below.
3%.
And the answer to that yes, but I want to go over the importance of that refinancing and 11 cents earnings pickup.
Since we began the rental home program.
We've been arguing that.
When the house and a lot have the same owner, they're entitled to the same financing its any apartments and we've discussed that.
With that she sees we've discussed it with Dr., Ben Carson and we have been pushing that issue for many years.
It looks to us like Weve.
Jump that hurdle and we're going to be able to obtain.
This Ci C.G.S.C.
Yes, the GRC acceptance of the rental homes, resulting in this lower cost debt. It's the Hugest development in manufactured housing our product the manufactured house cost, 40% less than stick built out home is put our loan cost at 40% more we're going to reduce that.
Cost of alone to equivalent to apartments and again, it's the biggest thing that's happened in the industry.
Along those lines I just mentioned that we are the at an S.G. social you MH comes into communities upgrades communities improve them, an AD fees rental homes, providing affordable housing and this is being recognized by the government agencies, which is why.
We're going to obtain this debt the second talk part of Rob's question. There was a how much lower is that she has seen debt price versus where you could finance other debt today I'll, let and to answer that sure we have available loans.
Availability, we have out line of credit our unsecured line of credit of $75 million of which 60 million with available at quarter end and that was that 1.68%. We have our lines of credit for the financing of our notes receivable and that was that prime which is three.
In a quarter percent. What we also know is that all about communities now qualify for GE at the debt. So we believe that any other debt or any other financings that we need will be go to the G.S. season, and so they will therefore be under 3% bank that is.
Little bit higher, but not by much probably about 50 basis points.
Good.
Second question was how our home sales trending in June and July and has there been any significant disruption to the production supply chain, where the financing in the market in general and Brett. If you begin that that'd be great. Yes, sure. We really haven't seen too much of a disruption in the supply chain weren't able to get our homes in a timely manner.
We've actually ordered more homes to this point this year than we did last year. So that's not an issue I'll touch on June and July sales quickly. So June sales were 2.3 million, that's actually an increase of 28% over June of last year and July sales were 1.6 million an increase of 26%. So even though sales for the year or down we are seeing.
Some positive improvements over the last few months so the only other and probably the most major impact on sales is we have to sales centers that do a decent amount of volume in the land home business. Our land home operation was impacted because we haven't been able to get permitting and inspections to these sites. So we've got several sales that we do expect.
To close on later this year that would have closed in the second quarter.
Very good and RUPS third question.
What does the acquisition pipeline look like behind this one you just did and we'll go into that Brett will go into that in detail, but I want to point out.
We've proven our business plan.
I mean, when we went out and talk to investors before cope with the most common question was how would we do when a downturn.
And we always predicted we do as well as department.
But as it.
Appearance in practice, what actually occurred as we did better because our products so affordable.
There may have been some doubling up where people who couldn't afford other units came into our homes.
People did not move they stayed longer and other people came to our product we've had a two of our directors who were in the apartment.
Area inspecting our communities the last couple of months and they're incredibly impressed with the quality of the communities and the homes and what we've done through the turnaround process and so I think our next step is to take this national we.
As owners of a substantial part of the company, we've always been conservative and.
Considered carefully what could happen if things went wrong what cobot, it's about it's wrong as things can go and we did extremely well and so with this new found confidence.
And how strong and consistent our revenue stream is we need to go to other states look for more acquisitions more turned around acquisitions and do them.
And we're very aware.
That to build a community takes a minimum of five years to make it successful five years would be very quick to do a turnaround property takes three years, it's not one year, it's not one day, it's three years, but those turn around properties are out there they are profitable.
To the extent that doing turnarounds in the past has reduced FFO, we're going to strive not to reduce our FFO, we're going to strive to do breakeven or better.
But what are you really make some money is increased value followed by at the end of three years increased FFO. So that's the game plan and were braver and more aggressive than ever as a result of successfully surviving the co bid period and now we can take the next question.
Thank you.
Question comes from.
I'm sorry.
The pipeline before we do that go ahead, Brett will add to the pipeline. So right now we have one acquisition and our pipeline.
When you in New York is 163 say, 69% occupied a 4.5 million or $28000.
We are due diligence that deal will move to closing there's a lot assumption involved and we expect close sometime.
Probably September so we also do have arrived on several other acquisition opportunities in two states, which Sam is talking about and hopefully throughout the remainder of this year, we'll be able to get to better information on that.
Thank you and now the next question.
Thank you. Our next question comes from Barry, Oxford with D.A. Davidson. Please go ahead.
Great. Thanks Guy side.
Sam.
When you look at your shall region, you don't seem to have been affected by the depressed oil prices that happened during the quarter.
And I know you don't have that much exposure.
To the oil and gas for one might have thought you you know you might not have weather did as well as you did.
So people should look at Marcellus shale news. It comes out you know maybe weekly.
Surprisingly there is still new well there are still new wells being drilled at this time I was surprised by the number of new wells being drilled in Pennsylvania, and Ohio at this time.
We are not reliant on the.
Well thrillers, but it's interesting that the well drilling continues.
The pipeline projects continue the cracker plant and the Panda plant the nothing is bigger than the economic impact the shelf cracker plant and two other cracker plants being considered in Pennsylvania, and Ohio that they're going to have a they employ something like 7500 people a day.
Building the shelf cracker plant, but the purpose of that plant is to convert natural gas into plastics and it's just like what Pittsburgh was the steel capital and you wanted to locate near Pittsburgh to get steel you were now that will want to located near Pittsburgh in Ohio to get these plastic pellets to me.
Manufactured your products with low cost plastics made right here in Ohio, and Pittsburgh. So this isn't built yet it won't be complete till 2025, but people are already trying to located near.
The cracker plant.
And it's just an incredible development that will last for decades.
Top of that.
No cost energy results in domestic manufacturing, which is why you have increased jobs, Indiana, Ohio, Tennessee Other places.
We are workforce housing.
Our residents have turned out to be the essential workers, who continue to work through the Cobiz crisis.
Despite the personal health risks et cetera, but they were the necessary workers, who had to be out there working and they went to work and got a paycheck and paid the rent.
Great appreciate that I appreciate that color, Jim switching gears, a little bit when you're talking about homes for sale and doing the financing how was your underwriting changed and you know also the the unemployment rate seems to be you know affecting a little more ad.
You know what the bottom half of of of the economy versus the.
Upper half of the economy, how how do you make sure that you're doing appropriate underwriting so that that mortgage gets paid so first again, we are that S and yes, she's social.
We've talked about internally why do we even sell homes anymore, you make money renting them and the answer is it's better for the customer to own that house, if they're staying three years they experienced substantial savings.
By owning that home and getting financed and we've decided that even though we'd make more money renting a home.
It's good for the customer which is also good for us because it means.
That customer's going to be more satisfied stay longer term tell their friends, what a great house they have and so we will continue to sell houses as well as rental.
Our underwriting standards were changed in 2009, when restrictions were placed on who you finance.
Incomes rise more and more people qualified despite those changes which helps our sales. Additionally, you MH recognizing that we've been financing home sale since 2001 and through whatever.
Terrible economic times, we've had including coated the loan portfolio has always for performed well with the loans being paid no repossession losses, if we have to take back to how we're able to.
Fix it up quickly winterizing resell, it or rented and take no losses and therefore, we are pioneering.
5.99% financing on our sales, which is a lower rate than anybody else charges and that results in additional sales.
It results in additional people qualifying because the less income they need to qualify. So you know many of our renters. The reason we rent.
Seven homes for every one we sell either those people are staying less than three years or despite having what we consider to be good credit. They don't qualify to buy the home and what we consider to be good credit that doesn't qualify a divorce situation for close from a 300.
Thousand dollar house moving into a $70000 house.
Recent business failure or student loan debt that.
Exceed the ratio. So you can't qualify those are all good customers, who want to live in our houses, but can't qualify and we're happy to take them.
Great. Thanks, Sam I appreciate it.
Our next question comes from Craig.
I will be Riley FBR. Please go ahead.
Hi, good morning, guys.
I think last quarter. The expectation was that you were deferring rent increases for the second quarter water did that play out and move into third quarter have you begun raising that again.
Correct, all rent increases all rent increase notices are being set now and any notices not send.
March April may have now been sent out so it'll be a three month lag for those communities, but they will get the rent increase.
Got it.
I think back in May with surveyed a number of your tenants and you talked there might it Ben as much as 30% unemployment amongst kinda the folks that weren't retired.
As we move kind of further along through the summer kind of what can you.
Garner where that would be today.
So first that's a very anecdotal number coming from our managers and.
Everybody was kind of been a crisis picture and thought things were very terrible and.
Late here People's Bad news that people are lost their jobs et cetera, and they estimated that to be 30%, but theres no science behind that.
And weve since we surveyed all of our managers and again, it's just anecdotal evidence, but it's in the 5% to 10% range I know some properties are saying almost no impact maybe one or two residence and some properties are saying up to 10%. So we feel much more confident about where that is now.
No. That's good news is I think I know the answer based on your commentary add up but.
Just looking at your same store operating expense this quarter quarter. It was down year over year was that just driven by the fact that some of those in year. One one acquisition expenses, we cleaning up and unit aegis aegis did not occur this year.
Absolutely and also some of the communities that we purchased two three years ago, we talked in the same store pool, they no longer needed those year, one year to expenses. So we were able to reduce our expense ratio.
Quite well [laughter].
Included in our you know really strong revenue growth is the fact that we've reduced forensic communities to become separately metered for water and sewer and then charged them the water and sewer. So in the past quarter. There were communities that occurred with in future quarters, there will be community say that occurs with but again it lowers our.
<unk> expense ratio, resulting in significant savings. Additionally, there are communities, where we do and are working on.
$1 million capital improvements to replace water sewer lines, where you earn approximately 20%.
By by reducing the leakage and infiltration.
Got it about it.
Switching things up you know your dividend income has been trending downwards year to date.
Tough second quarter for a lot of retail lanes the portfolio what are your current thoughts on on the portfolio going forward.
The portfolio has not performed well.
But.
It's still approximately where was the beginning of the year and a lot consider the old it as some of the stocks are doing fairly well, but the.
We have the lead to themselves many of the.
Suspended the dividends, we have the option of selling those shares and use in part of that money to pay off prefer to reduce that so that even though the or the amount of dividends will receive go down we have the option as long as the values of the stock stay up a of reducing our portfolio and the.
This thing Oh, it's just the cost.
The book for the portfolio is not.
A large portion of a investments.
Some of the stocks a very stable.
We are able to borrow against it it's a sub 1% I believe the portfolios about the 90 92 million now and.
We continue to watch it and the certainly we'd stocks today of fluctuate the substantially.
Rather optimistic that Oh, we're able to reduce the portfolio in the in size. So that will give people a questions on the portfolio because it really isn't the critical we we regret the we what one of the portfolio for decades, and his gave us a a lot of flexibility.
The that allowed us.
Today, though that we had the $100 million to use if we wanted to buy park. So 100 million to use if there was some other need for capital and its though that we still have about a 100 million to use hopefully it.
We will have to but the company with the 22000 sites and over billions of assets the 100 million as a.
This is not that significant so the portfolio a and the reduction in dividends by the way has reduced though.
Things and our coverage for dividend, but projections are so good that Oh, we're confident that we can increase earnings and cover the dividend.
Okay great.
Just moving to the expansion side and imagine that they've got quite a bit tougher to get those kind of approved and through that process in the second quarter number municipal offices were closed that have things started to normalize here in the third quarter, which should allow you to kind of push some of those with approvals as Ed.
Our Vice President, Jeff Europe does a tremendous job getting these approvals in place and.
You know we're on track to do the number of lots Brett referred to yeah. So.
We were certainly delayed.
Seeing now than we are getting some approvals and that's why a lot of this years prove expected approvals were pushed into next year, we expect to develop a 191 side. This year, we expect to develop 450 next year and in the next two years, starting now we expect to have approvals on 1100 subs.
Okay.
And if you if I had a passionate about.
If I could add on site you MH participated in a black just series.
Sponsored by the manufacturing housing Institute and the protection was that the manufactured housing industry.
Can significantly assisted in the solving the affordable housing crisis.
The goal for the entire industry should be an additional 100000 homes, a year, which would be 500 200 space communities being build every year for a decade, so we need a at least a million more.
Units.
The.
You are rates will continue to push for.
The approval process spring.
Made more reasonable we haven't built enough Clarkson last 20 years in fact, we would go to almost non whereas the decades before we used to build 100000.
Units, a year and a 100000 sightseer, so and the political atmosphere, we see that both political parties also have as a goal that the affordable housing be built and both political parties are looking into how we can get more approvals.
For more manufactured housing or sites, because we desperately need the housing.
Got it.
And I wanted to circle back with you on some of the new.
Debt products that you're working with on the GRC than some of your bags I guess first choice when you're looking at a credit facility, yielding rental homes as collateral lateral kinda talk about the you have a loan to value that you said a bank is willing to look out is that pretty similar to the apartments or just any color there would be great great right now because it will be a new product they're looking at it.
Got a 60% LTV so for us that sounds great, especially starting out they have never had this program before so this is up a new programs. They will have that they will have with your image.
I want to Kate.
Well of course to other companies too.
Okay. Okay that was my next question just thinking about the GRC debts and looking at a union the price here in about 3% do you think you're going to roll that out across the industry or you know they going to kind of had a little bit more stringent underwriting totaling they're willing to offer that too they are pretty stringent on what they're doing right. Now are they know us we've had a lot of.
Of transactions with a with the G.S. These.
Right now they have not rolled it out to anybody else in the future. They want to make this see I guess they want to keep this as a model and then take a look and see what else. They can do with other companies. It goes back to our whole argument that we have the opportunity to create horizontal.
Apartment thousand square foot three bedroom, two bath homes on 50 by 100 lot nobody in living a few below you don't get an elevator with anybody else you Park your car in your driveway at your lot you walk into your rental dwelling unit, which is more affordable than anything else in the local.
Area that you are.
If more people get approvals to build these and can get this financing.
We're talking about it will greatly expand the amount of affordable housing in this country.
Fannie Mae Freddie Mac, they all recognize that when that occurs and there is additional products.
MH like other reach will have more properties to acquire which is very good for us.
Okay, Great. That's it for me. Thank you. Thank you.
Again, if you'd like to ask questions. Please press Star then one month.
Our next question comes from L. Ross with Compass point. Please go ahead.
Thank you and good morning.
At some point during your comments I mentioned that 310 million in Oh asset purchase with preferred stock they could be refinanced with GSK did would that be subject to the.
Coatings on necessary.
Yes, exactly the redemption date, yes, we would we haven't each issue of preferred at the time it comes due with the new lower cost debt.
I looked up [laughter].
The other question more interesting thing going national.
What's it called <unk>.
Well, it's really more based on availability, but what we know is the formula right of what works. We know what we're looking for so we just have to find it.
And.
You know when a matter of what state. It's in right. We've decided we want to do this nationally. So it's a question of the numbers working and the property meeting our criteria. So wherever that occurs we would go.
Yeah that makes sense I mean, and this milestone we seem to be appealing to a higher rent or rental rates population anything and no winterization nation [laughter].
Yeah, well do it anywhere out works and and.
You know its workforce housing where are the demographic trends going work, where our more people coming well where does everybody acknowledge there isn't a shortage of affordable housing.
Where their communities that have been collected and especially if they have land joining in the community. So they can be expanded that's what we're looking for.
Thank you. Thank you.
This concludes my question and answer session I would like to turn the conference back over to Samuel Landy for any closing in.
Thank you operator, I would like to thank the participants on this call for their continued support and interest in our company has always gene Anup, Brett and I are available for any follow up questions. We look forward to reporting back to you in November with our third quarter 2020 results. Thank you.
The conference has now concluded thank you for attending today's presentation.
[laughter] teleconference replay will be available and approximately one hour.
To access this replay please dial U.S. toll free 18773, or 475 to nine or international one for one too.
317 008.
The conference I'd number is one zero.
Four sites for 14, Thank you and please disconnect your lines.