Q3 2020 UMH Properties Inc Earnings Call
Generates significant value the other two properties aren't quite as far along so I can't get into too many specifics, but it isn't another new state and the northeast. It's 235 sites, 97% occupied it's not our typical value add deal, but there is a value add component in the fact that theres an old sales center.
Which we plan to reopen it's a very strong sales market.
And we also have the ability to develop some additional sites at the property. So those.
Those four deals represent 21 million total, we're very happy with where the pipeline stands currently and we look forward to growing it in the near future.
Great. Thanks for thanks for that color.
Last question and when we look at Genie you guys were running 8% of revenues is that good are you comfortable with that number.
Sure look good DNA might be moving in 2021 for this reason well DNA right now is about 6.5% of total income.
And we believe that that is a good number in 2019. There was also about six and a half it was 6.4%, but as we grow we've been growing algae nave, but still at a reasonable amount compared to our total income because our total income has been growing just as fast or it if not faster.
Right perfect appreciate it all right. Thanks, guys.
Thank you.
Our next question will come from Rob Stevenson with Janney. Please go ahead.
Good morning, guys, Sam you've been having some big gains in occupancy that's really been choosing the same store results at what point do those games start to slow down the year over year comps become.
Much more challenging or it's tougher to get.
The occupancy gains going forward once you get.
You know 80, 889%.
Well I believe that the you know supply of new affordable housing is that something like a 40 year low so with that in mind or.
There's a lot of reason to believe we will continue to increase occupancy from our 86% you know into the mid ninetys by adding the rental units. So I really don't see a negative.
Change there I see you know the cost of building new communities the difficulties of building affordable housing.
Our competitors in apartments townhouses condos costs much more money, we have a fantastic product at a fantastic price and I really only see revenue and occupancy growth there.
Okay. So I guess another question related question is so how much rental unit demand is there beyond what you're already tapping to within your existing communities. In other words you guys added I think it was 317 rental units in the third quarter and so if you added 100 million more rental units last quarter would you been able to lease a good chunk of them.
Up or was dimension demand essentially plus or minus a bit. The 317 units that you did and Thats why you Didnt add 400 or 500 rental units in the quarter and there's a number of timing issues. One is you know how long it takes to get the house from the factory to is how long it takes to set it up.
And just like a developer you know building a housing development.
We consider successful to be adding four homes per month.
You know usually not realistic to.
To expect to go much faster than that although we have some communities. So you know we expect manner.
Managers and communities to fill about four units per month, and so we look at it you know speaking to a vice president of rentals is very on top of demand.
And you know on a same store basis, we expect to add the 800 to 900 units.
These new acquisitions with terror vacancies give us the opportunity to accelerate that but again you have a little bit of a time lag because.
The first year and a half we have to turn around the physical assets improving it improving the reputation marketing getting.
Personnel, who knows how to do what we want to do but following that its additional vacant sites for us for so quickly.
Okay, and then lastly for me if I'm doing my math right you guys sold 108 homes for around six 8.8 million in the quarter boils down to sort of 60 to $63000. A home is that reflecting is that you know similar homes that you were doing over the last few quarters and just reflecting.
Cost inflation on homes or is that a reflecting more expensive homes that you sold either double wise or improvements et cetera are add ons and stuff like that the 63000 seems higher than what you guys have been selling.
The last year or so.
So Brett will help me with the exact numbers, but before December 31st we're going to complete how many lots. It's approximately 191 lot sales and next year, we expect to complete so through the spring of 2021, It's a 304 24 lot okay and all of those in new lots are going to be.
[music].
Primarily used for multi section sales, which can range from 120000 to over 200000. So you should in the future.
I have a higher.
Average price per home sale.
And they are on the same general Mark up 30%, so that should improve.
The demand for.
The multi section houses has been good and there's also the learning curve as we acquire new communities teaching the people to sell in at homes and that's all going in the right direction. So there is a lot of reason to believe we're going to continue to increase sales at higher prices higher total revenue and a higher profit.
The margin overall was about 60000 62000, but on the new homes. The average price on the new homes was 93000 versus about 88 last year and then on the used it was about 37000 for both last year and this year that's on our total for the year to date.
Okay, what is how much more square footage or the bigger ones are the nicer ones, having versus the stuff that you're buying for rentals et cetera.
Net rentals are doing generally thousand square foot 16 by 60.
62 homes can be 68 could be somebody.
And sales homes are generally multi section used homes or single section, but the new homes are your 28 by 60 28 by 70, you can even be 32, but most of ours are 28.
Okay perfect. Thanks, guys appreciate it.
Our next question will come from Alan sitting with home. Please go ahead.
Hello, Hey, Thank you where is youve got almost as many used homes as new homes I'm, just wondering where all the used home inventory is coming from are you picking those up when you're buying new parks or are they <unk> people.
Foreclosing on the newer homes that were in previous quarters, what where are those coming from.
Yeah. So it's.
A lot of different places Oh, we have 8100 rentals and a lot of those used home are going to be used rental home sales are certainly there are some foreclosures, but nothing significant nothing outside of the norm. So yeah, it's going to be a combination of rentals and some of those older foreclosures, but again.
It's nothing outside the norm and its a about where we would expect it to be.
I see about what percentage is is it selling a rental home.
Well, we had a total sales of our U.S comp of about.
I guess it would be about 140 150 units. So if you think of the 150 units most of those being our rental homes and we have 8000 rental homes. So it's really a minimal amount that is being sold on an annual basis.
But the percentage of what you sold was was repossessed homes is that like 3% or 30% or it's a minimal number I don't have the exact number but I would think it would be under 5% and you know that.
Percentage, a number goes up and down with the economy and today with things very good Theres very few repos yeah.
That makes sense. Okay. So it's just people. It's just rental homes are getting so I wonder what portion of the rental homes being sold are getting sold to the people that were really in the home that were in the home.
Almost all right.
Yeah, So what to look for the most part I mean people rents the homes, they like and they would like to buy it. There maybe also some others that we always have our homes for sale or rent. So therefore, if a person wants to stay for over three years and they want a a lower.
Our price today, then our double wide, which can go for 100000, we may sell them or rental yes.
Yeah Okay.
Okay. Thank you very much.
Our next question will come from Keegan, Carl what the ban Berg. Please go ahead.
Hey, guys. Thanks for taking my questions. So first I know you haven't issued formal guidance, but maybe can you give us some color on what your rental increases are looking like going into next year and they kind of on par with what you've done so far this year.
Yes, so it's 4% on any communities with.
Over 80% occupancy if they have less they won't get a rent increase at all this year. There was a delay what unit winter. When cobot began there were no in rent increases for approximately three months, so that actually decreased our increased revenue from rent increases although revenue growth was very strong.
And that was because of occupancy too because the occupancy went up so that made up for the delay in our rent increases.
Okay. That's helpful. And then I know you guys mentioned about have you expanded into several new states, maybe give us some color on particular state you're looking at and what pipelines could look like several years down. The road do you think there's more opportunity in the newer states where you're currently at.
Well the best thing to do is to duplicate what we did in Nashville, and what we found in Nashville was neglected communities just outside of the center of the city and it appears theres more opportunities like that predominantly in the south but probably in other places.
And you know the higher the population is the better we will do.
And that's that's what we're looking for and.
What cove it made us recognize.
You know pre covert people would always ask how would we do in a downturn with the rental homes and we always assumed we do as well as apartments, but you know that could generate vacancies in a decline but in fact, we maintained.
90% of 5.7% rental home occupancy, 95.7% rental home occupancy and 98% ranked collection. So it really doesn't get any better than that so with that in mind.
We knew there is no reason not to grow this business and so we actively started searching new markets and Fortunately, we've already filed and deals that we can do and we are sure. There are more of them and we will continue looking and doing them.
Okay Cool and just just one final one for me how should we think about the funding mix going forward, especially now do you utilize your preferred ATM.
So.
The most important thing here is that we've redeemed the 90.
$98 million in 8% preferred using the new debt at 2.62%, so that benefits us for ever and.
And it benefits us at the rate of 12 cents per share. So that is incredible and there's going to be further opportunities to do the exact same thing we'll continue to issue.
Preferred and potentially common through the ATM to keep a strong balance sheet, but and I will give you more color on.
Redeeming the future preferred as they come due and using mortgage debt well we have.
I will say, we see which is about 250 million right now that's at six and three quarters and that comes due in July of 2022 are redeemable in July 2022, and now these are about 135 million, 6.38%, we deem till January of 2023, so over the next.
Few years, we have about $100 million of.
Mortgages, which will be coming to add because of the value we've created and because of the increase occupancy an increase income we believe that those costs.
Communities will generate maybe approximately 200 million in mortgages. So we'll have another 100 million right that also we have been working with outlook with Firstbank and without the GE has ceased to try to and with Firstbank. We've already succeeded that we are able to tap into.
Our rental homes the equity in our rental homes in the past we had purchased these rental home using preferred stock and now we have been able to get a 20 million line of credit, which is expandable to 30 million and since it's a new Pratt program, it's probably even expandable further but the interest rate.
On those loans is gone to be about a prime plus a quarter, which is about four and a half cassette that I'm sorry, 3.5%. So that the savings that we'll have there and the additional rental homes that we will be able to finance is a love that.
Another Avenue of capital.
And just to repeat what we tell people when we meet with them.
In 2011, when we first went to rental units.
We had to get acceptance by our residents in the community that people, who own homes excepted rental homes, we had to get acceptance by our bankers and acceptance by our investors. The people in the communities have clearly accepted rental units. They recognized brand new homes upgrade to communities and increase the value of the home as they own.
This loan was a giant milestone because now Fannie Mae has recognized the value of rental units and given us this 2.62% mortgage and we continue to work with the G. SIFI to create a program to strictly finance the chattel the rental home at low rates, that's being worked on every day.
Okay, but has not been implemented as of yet and the last part of that needs to accept it is the investors, which I think not really yet noticed what we've done.
You have apartment rates you have rental home rates.
You have manufactured home rights, but no nobody's recognize the value and our ability to grow this business of rental manufactured homes and communities. It's the way to provide affordable housing it meets the social need where the lowest cost producer of quality affordable housing.
And you on H. has the staff our professional engineers Vice presidents sales staff to continue to do it and growth.
Alright. Thanks, Thanks, it's the questions guys.
Again, if you have a question. Please press Star then one our next question will come from Craig Que Sera with B. Riley FBR. Please go ahead.
Hey, good morning, guys I want to start out talking about your sales you know given the pick up in pace here. This quarter do you anticipate any inventory issues over the next several quarters if demand remains high.
It is a problem. We're you know we're pushing the manufacturers that they have to wait find a way to produce more houses and I believe that's doable.
You have issues with a set of companies you.
You need more set of cruise there.
Theres issues, you know that the factories have with getting materials. So there are issues out there that you know may slow down our growth, but we've continued to replace anything we sell with new homes and to an extent, we'd like to go faster and I know there is some delays out there Brett can be more specific.
Yes, so backlog so all of a sudden at the factories are ramped up to about five to six months. So it certainly is an issue into Sam's point, we've always kept a good amount of inventory knowing that this could happen. So right now we do have inventory in stock, but our orders that were placing now we're going to be delivered in March and in some cases.
Naples, so are we.
We are proactively ordering inventory so that if these backlogs continue we won't have this issue.
Got it and when you're selling used homes do you have to complete any meaningful capex on those homes before you put them up for sale or is it pretty.
Pretty low cost.
But he pretty low cost I mean, we always maintain our rental home sales. So therefore, there's very minimal cost involved when we sell.
Okay got it.
I want to circle to the dividend policy I think you've been at about 18 cents a quarter since 2009.
With the strength in operations.
Mid double digit same store on a why you've got the reduction your cost of capital here in the fourth quarter going forward and a few things coming up over the next several years can you talk about how the board would view the dividend if your payout Russia ratio drops significantly in 2021 and maybe beyond.
Well.
Eugene Landy chairman.
We're always considering whether we can increase the dividend.
And we are not tied as much.
Conventional FFO.
You look at our quarterly reports are usually report the value of our communities is rising rapidly and these these by values can be realized by financing the communities and so we have access.
The mortgage capital.
And though we do not have a high capital or not over leveraged at all and so really if you think.
Company is going ahead 50 million a year in value and you talk about a 47 million shares and increasing the dividend by five or 10 cents, you're talking about a 2 million $4 million.
That's not significant the and the.
The investment committee to the to realize how well the company is doing and how how much the value of the company is going up each year. So that we will consider.
Increasing the dividend, but it really is because we don't want to be too unconventional, but as we go over the 72 cents, if we pick up a little.
The additional 12 cents.
On the refinancing of the 8% preferred if we as we approach a dollar per share FFO you can be sure that we will seriously consider increasing the.
The dividend to reflect the real values that are occurring and increased value of the companys and of course, the there's a potential for the company growing as we go to full occupancy and the ER how about events.
Fotis the competitors rents and the additional efficiencies cause as you get to be fully occupied so yes, yes, we are going to.
Consider that but the let's.
So it does have a couple of good quarters for us. The then we'll take that slip but my math is if you increased the dividend of one cents per quarter. During 2021 at the end of the year you might wind up at an 80 cents payout ratio with a four cents dividend increase so we'll play that day by day.
But if things work out that's where we could be.
Got it.
Brett I wanted to circle back on the acquisitions are the two other properties you mentioned in the northeast are likely to close here.
Fourth quarter are those possibly going to slip in the first quarter first half of next year.
So.
I don't want to touch on that too much but I I would say, it's much more likely that they closed in the first quarter of 2021, we're not under contract yet so timing wise diligence et cetera. They are unencumbered. So that does help us, but our first quarter is more likely.
Got it and can you talk about the the pricing differential from a from a cap rate perspective between you know buying these 40% occupied assets in the south versus the 95% ones in the in the northeast.
Sure. So the northeast properties are in that 5.5% range, you know, which I think is actually a pretty good price given what we see in other areas of the market prop.
Properties high quality communities in our markets are trading at four 4.5% cap rate. So we're very pleased with where we are there the deals in the south it's tough to put a cap rate on them I mean, now I would be giving you a projection because it 40% occupancy it's really not a cap rate play we're buying them at a cost per site that we think is reasonable we can get in there.
Make the improvements at our $50000 rental home and earn a return that we're very comfortable with the so those you know I wouldn't put a cap rate on it only because we're going to go in there we're going to do some significant capital improvements there will be home removal those properties will go backwards before they go forward, but after two or three years you are.
Going to be the significant and what you're going to see the significant and why growth that you've seen in our other previous acquisitions and we've taken a look at what's what's the percentage return on properties, we own say 10 years.
Yes, so or its between 40 and 100% depending on what year, you look at and that's even less than 10 years, a that's five six years in some cases, so we certainly generate a solid total return after we are able to get in their clean these properties up Ah stay.
Stabilize them and ultimately increase occupancy and reduce our expenses.
And because they are 40% occupied does that extend sort of the period, which you would you would get a stabilized I feel like traditionally been buying closer to 60 or 70 and get it stabilized inside of three years, let's say that this is it's become maybe four or five years or do you think it's still pretty much on target for your normal kind of two or three year stabilization period.
I I would say, it's probably three years I mean, I really cool based on what we see in the market. It's a strong rental demand market Weve had properties. This year for instance, one of our 2018 acquisitions went forward 100 rental homes.
So assuming strong demand of 25 to 50 homes per year, it's a three year process if for whatever reason it lags behind that been short because certainly dragged on a little bit but.
The good thing is we're looking for markets, where you know based on the in place demographics. We think we can execute based on what we've done in our northeastern portfolio. So the plan is the two to three year turnaround.
Okay, great. Thanks.
This concludes our question and answer session I would like to turn the conference back over to Samuel Landy for any closing remarks. Please go ahead.
Thank you operator, I would like to thank the participants on this call for their continued support and interest in our company as always gene Anna Brett and I are available for any follow up questions. We look forward to reporting back to you in March with our fourth quarter and year end 2020 results. Thank you.
The conference has now concluded. Thank you for attending today's presentation. The teleconference replay will be available in approximately one hour to access. This replay please dial U.S. toll free 187734475 to nine or international at 141231.
Seven 008 the conference I'd number is 101479 to eight thank you and please disconnect your line.
[music].
Hi, Mike.
[music].
Our.