Q1 2021 UMH Properties Inc Earnings Call
Earnings Conference call, all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two.
Please note. This event is being recorded it is now my pleasure to introduce introduce you to your host MS. Nelli Madden Vice President of Investor Relations. Thank you mismatch Lynn you may begin.
Thank you very much operator in addition to the thank you that is filed with the FCC yesterday, we have filed and I'm going to get that first quarter supplemental information presentation.
Supplemental information presentation, along with our 10-Q are available on the company's website at UMH that suite.
I'd like to remind everyone that certain statements made during this conference call. We try not historical facts may be deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
The forward looking statements that we make on this call are based on our current expectations and involve various risks and uncertainties.
Although the company believes expectations reflected in any forward looking statements are based on reasonable assumptions. The company can provide no assurance that its expectations will be achieved.
The risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's first quarter 2020, one earnings release and 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'll be discussing non-GAAP financial metrics reconciliations of these non-GAAP financial metrics to the comparable GAAP financial metrics as well as explanatory. Unfortunately language are included in our earnings release, our supplemental information and our historical SEC filings.
Having said that I would like to introduce management with us today.
Eugene Landy, Chairman, Samuel Landy, President and Chief Executive Officer, Anna Chew, Vice President and Chief Financial Officer.
That stack, Vice President and Chief operating Officer.
Jim Like Inc, Vice President of kept on markets and Daniel Landy Vice President.
It's now my pleasure to turn the call over to Julie <unk>, President and Chief Executive Officer Samuel Landy.
Thank you very much nelli I am pleased to report that UMH continues to execute on our business plan generating long term durable value and improved earnings for our shareholders.
We have spent years acquiring value add communities in strong locations below replacement cost and making the necessary improvements to provide quality affordable housing.
This strategy takes time to execute but now that we have completed most of the turnaround work and provided the best form of quality affordable housing in these markets our demand is very strong.
Rental homes and manufactured home communities are the best way to pass on the affordability of our product to our residents.
Over the past few years, we have seen our hard work pay off.
Communities that were one or two star communities. When we acquired them quickly turned into three and four star communities.
The improvements that we've made at the communities are now translating to increased occupancy improved operating results and <unk> growth.
The results generated by this business plan gave us the confidence to move into new markets. We.
We have begun to diversify our portfolio into the south east and look forward to producing exceptional results in these new markets.
Normalized <unk> for the first quarter was <unk> 20 per share representing an increase of approximately 33% year over year.
Our solid operating and financial performance in 2020 allowed us to raise our 2021 dividend five 5% to 19 since quarterly or 76 cents for the year.
Normalized <unk> covered the dividend for the third consecutive quarter and going forward. We anticipate continued improvement of our dividend payout ratio.
Moving on to operations total income for the quarter increased 15% to approximately $43 million.
This increase was the result of a 13% increase in rental and related income and a 37% increase in sales of manufactured homes.
Our operating expense ratio improved to 44, 3% from 45, 1% in the first quarter of 2021.
Our income growth paired with our expense stabilization, resulting community NOI growth of 14%.
Our same property results continued to demonstrate the success of our long term business plan.
Same property occupancy was up 320 basis points or 750 units over last year same.
Same property, NOI increased 16% or $3 $1 million as compared to the first quarter of 2020.
On an annualized basis. This is an increase of $12 $4 million.
And at a 5% cap rate and increase in value of approximately $180 million after investments and capital improvements and new rental homes.
This is the sixth quarter in a row that we have achieved double digit same property NOI growth.
Our strong same property operating results, especially during COVID-19 reinforce our belief in our value added business plan the improved.
The operating result substantially increase the value of our portfolio.
On a rental home program continues to be the primary driver of occupancy growth within our communities.
During the quarter, we added 218 homes to our portfolio, bringing our total portfolio to approximately 8500 rental homes at.
At quarter end, our rental home occupancy rate was 95, 4%.
We are satisfied with our residents length of stay the expenses per unit and the turnover costs between residents.
Rental homes are in high demand throughout our portfolio.
We have waiting lists at many of our communities, we expect to add another 800 to 900 homes into our portfolio. This year.
The main problems facing our rental home program or the inability of the manufacturers to meet the demand and deliver homes in a timely manner and increasing prices we.
We are currently facing backlogs of six to nine months in most locations and homes are up in price as much as 40% from pre COVID-19 levels.
The strong demand we are receiving throughout the portfolio has allowed us to achieve increase rents to cover the increased cost of the unit.
The replacement cost of every home in our portfolio is up 40% as a result of the increase prices from the manufacturers.
Gross sales for the first quarter were $4 4 million, representing an increase of 37% over last year. We sold a total of 73 homes of which 31 were new home sales and 42 were used home sales.
Our average sales price was $61000 as compared to $52000 in the prior year period.
We finance, 59% of our home sales in our portfolio now has a principal balance of $45 2 million at a weighted average interest rate of seven 3%.
Our communities are reporting strong sales demand and we anticipate continued sales growth for the remainder of the year.
We have expansion sites coming online in markets that are experiencing strong sales demand. We have 463 sites currently in development we.
We anticipate completing the development of approximately 550 sites in 2021.
The acquisition market remains competitive, but we have been able to opportunistically acquire value add communities.
During the quarter, we acquired one community in Alabama, and one community in South Carolina for a total purchase price of $8 million. These.
The entities contained 337 sites of which only 42% are currently occupied.
You are in areas with strong demand for affordable housing and we expect to generate significant property value appreciation over the next five years.
These are the new markets for UMH, and we look forward to scaling our portfolio in these and surrounding states.
We have one community containing 204 sites under contract for a total purchase price of $10 $3 million.
We continue to seek additional acquisitions that meet our growth criteria.
2021 is off to a great start our portfolio was larger in our communities are stronger and more valuable than ever before demand for homes is at an all time high we have internal and external growth opportunities available to us in the form of occupancy growth expansions value add acquisitions and potential.
Greenfield development opportunities.
We have positioned the company to aksel over the long term and the improvements we have made throughout our portfolio are now starting to translate to the bottom line.
And now Anna will provide you with greater detail on our results for the quarter.
Thank you Sam funds from operations or <unk> was $8 $4 million on 19 cents per diluted share for the first quarter of 2021 compared to $6 1 million or 15 cents per diluted share for the prior year period.
Normalized <unk>, which excludes certain nonrecurring items was $8 $7 million or 20 cents per diluted share for the first quarter of 2021 compared to $6 $1 million or 15 cents per diluted share for the prior year period.
These increases were due to our solid operating results as well as the redemption of our 8% series B preferred stock in October 2020.
The full effect of the redemption will be seen throughout the year.
Rental and related income for the quarter was $38 $7 million.
Care to $34 $4 million, a year ago, representing an increase of 13%.
Community NOI increased by 14% for the quarter from $18 $9 million in 2020 to 21 $6 million in 2021.
These increases were primarily due to community acquisitions. The addition of rental homes the growth net occupancy and an increase in rental rates.
Our same property monthly site rent increased three 8% and on monthly home rent increased three 5%.
Our average monthly site rent is now $470 and our average home rent is $802.
Same property occupancy increased 320 basis points or 750, <unk> occupied sites over last year.
Same property occupancy is now 86, 3% and same property rental home occupancy is 95, 7%.
Sales of manufactured homes increased 37 per cent for the quarter from $3 $2 million in 2020 to $4 $4 million in 2021.
Our 37% increase in sales resulted in a sales force of $237000 for the quarter as compared to a 315000 dollar sales loss in the prior year.
During the quarter, we have also strengthened our balance sheet by raising both common and preferred equity through our ATM program. We sold one 3 million shares of series D preferred stock at a weighted average price of $24 85 per share generating total growth.
<unk> of $31 $4 million and total net proceeds of $39 million after offering expenses.
We also sold approximately 352000 shares of common stock at a weighted average price of $19 eight pence per share generating gross proceeds of $6 $7 million and net proceeds of $6 $6 million after offering expenses.
Subsequent to quarter end, we sold an additional 911000 shares of our series D preferred stock at a weighted average price of $24 93 per share generating gross proceeds of $22 $7 million and net proceeds of $22 $4 million.
After offering expenses.
We also sell it on an additional $2 1 million shares of our common stock at a weighted average price of $19 41 per share generating gross proceeds of $39 $8 million and net proceeds of $39 $2 million.
These proceeds will be used for general corporate purposes, which include the purchase of manufactured homes for sale or lease to customers Act.
Acquisitions of additional properties expansion of our existing communities and paying down short term debt on a temporary basis.
As we turn to our capital structure at quarter end, we had approximately $545 million in debt of which $469 million was community level mortgage debt and $76 million with loans payable.
86% of our total debt is fixed rate.
The weighted average interest rate on our mortgage debt was $3 eight 1% at quarter end compared to $4 one 4% in the prior year.
The weighted average maturity on our mortgage debt was five eight years compared to five seven years a year ago.
At quarter end UMH had a total of $440 million in perpetual preferred equity.
Referred stock combined with an equity market capitalization of $825 million and our $545 million in debt results in a total market capitalization of approximately $1 $8 billion at quarter end, representing an increase of 36% over the.
A year period.
From a credit standpoint, our net debt to total market capitalization was 29% on net debt less securities to total market capitalization was 23% our net debt to adjusted EBITDA was six six times on.
Net debt less securities to adjusted EBITDA was five three times, our interest coverage was three eight times and our fixed charge coverage was one six times.
From a liquidity standpoint, we ended the quarter with $25 million in cash and cash equivalents and $30 million available on our credit facility with an additional $50 million potentially available pursuant to an accordion feature.
We also had $25 million available on our revolving lines of credit for the financing of home sales and the purchase of inventory and $15 million available on our new line of credit secured by rental homes and rental home leases.
Additionally, we had $108 million in our REIT securities portfolio encumbered by $1 $8 million in margin loans.
This portfolio represents approximately seven seven per cent of our underappreciated assets.
We limit our portfolio to no more than 15 per cent of our unappreciated assets, we are committed to not increasing our investments in the REIT securities portfolio.
During the quarter, we sold $4 $5 million of securities.
We plan on maintaining our securities portfolio at approximately $100 million.
As of May six the portfolio had a value of $116 million.
We continue to work on providing the company with additional financial flexibility. We are in discussions with Fannie Mae to utilize our rental homes as collateral for low cost GSE financing. This is another step in providing quality affordable housing to our residents.
With our 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 gene before we open it up for questions.
Thank you Anna.
UMH has an important mission UMH provides needed affordable housing for our citizens on residents.
Our goal is to excel.
Sure.
The affordable housing shortage across the nation is becoming more apparent the nation needs three 3 million homes immediately to meet their housing demand.
<unk> 350000 homes become obsolete on an annual basis. The manufactured housing industry can produce homes on sites at less than $200000 per unit, including land.
Average cost of a new manufactured home without land is $82000 compared the site built at $299500 without land.
All the while high rise apartments cost between 250000 to 400000 per unit to produce.
Historically, obtaining approvals to develop new communities has been next to impossible. So we are focused on purchasing communities with in place approvals.
Our ability to successfully revitalized properties has been proven.
New government programs may enable us to develop new communities by eliminating exclusionary zoning and harmful land use policies.
On the political discussion is downpayment assistance with lower income individuals as a possible new program with potential for our industry. It is an exciting time.
UMH is affordable housing provider. This gives us all on opportunity to contribute to society.
On to invest in a very worthwhile endeavor.
The platform that we have built has proven to deliver quality operating results quarter. After quarter, we have experienced double digit sales and net operating income growth.
3500 vacant sites on our 1800 vacant acres provide us with a runway for growth for the foreseeable future.
Yeah.
Filling vacant sites improved business results and provide some needed housing.
Even before the outbreak incisive build we have to begin to develop new sites and new communities.
Demand for affordable housing and housing in general is only going to increase demand for our product in our communities, we only gets stronger.
We plan to call out $247 million of our 675% series C preferred stock in July of 'twenty to 'twenty two.
Reducing our cost of capital from 675% to 4% would generate additional F. F O a $6.8 million was 16 cents per share.
Our strong results are being recognized by the public market. We believe that if we cross the 1 billion equity market cap Mark there will be an even greater investor interest in our company and our story, we will now be happy to take your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys.
Anytime you. Your question that's been addressed and you would like to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question will come from Rob Stevenson with Janney. Please go ahead.
Hi, good morning, guys.
Sandra Anna you guys raised.
$100 million between the common and preferred equity year to date and then also sold somewhat on the securities portfolio.
You talked about the $10 million acquisition, you have under contract and buying additional rental homes, but that leaves a lot of capital deploy is there a pipeline behind the $10 million acquisition that you guys are raising the capital from is there something else that you guys plan on using that for or just being opportunistic in raising the capital while the market is strong.
Well the the capital budget combined with accuracy.
Wiring the rental homes and the financing of home sales.
All comes to $100 million.
Brett over to Tiger Woods, depending on yeah sure. So we've got the one property under contract 200 force size $10 3 million. That's in Ohio, We are very close to having another property under contract and one of those two new markets without having it under contract I don't want to give away too much more information. We also see some other acquisition opportunities in this.
New markets that we've got letters of intent out on so.
On the coming months, we do anticipate growing net acquisition pipeline. So there should be sufficient uses for that capital.
And then the other one from me is.
Yeah.
So monmouth's as one of your biggest shareholders.
At this point in time.
Have you as part of the transaction with EQT has there been any discussion as to what will wind up happening with the UMH stock have you guys either entered into a discussion of our plan to enter session to trade. Some of your Monmouth shares for UMH you happy to just have that sold into the market you talk about that well.
Not discussing anything that pertains to the mommas matter, but now we can we can discuss the volume of thought of it.
My mother's put out a a.
A very detailed the.
Merger agreement on the if you read the additive there's nothing in there that this is the then there's no nothing.
On that subject, so I have to refer you to.
The amount of material that's on file.
Thanks, guys I appreciate it.
Our next question will come from Keegan Carl with Bahrenburg. Please go ahead.
Hey, guys. Thanks for taking the question.
Maybe first can you give us some details on how you are sourcing deals on the south relative to your traditional northeastern region.
Yeah.
Yeah.
I'll just say that.
Predominantly what we're doing is as true value add debt.
We look at the cost to build sites and how difficult it is to get the approvals and in the communities. We've already acquired in the South you acquiring existing lots water sewer roads everything in place.
Generally for less than the cost of taking the land engineering and getting it getting the approvals in the northeast.
Go ahead from here and then how were sourcing acquisitions, it's very similar to how we source them on our existing markets now that we've entered into Alabama, and South Carolina, the broker community knows where there we've.
<unk> markets that we really want to focus on we have our own employees cold, calling property owners and in sourcing acquisition leads for us and.
Some other people that don't want to go through a broker will contact us directly and we'll see if we can negotiate a deal that makes sense. So it's the same with.
Just in new markets.
Got it and then from an occupancy perspective, you guys on any expectations on gains on the rest of the year, just based on applications and kind of a level where its average 2019.
Well the applications are stronger than ever sales are stronger than ever our rental occupancy as a percentage is stronger than ever.
It's hard to say you know what.
What's going to happen as COVID-19 has completely gone in terms of you've had virtually no relocation during the past year. So turnover has been way down so that may have a bit of effect, but at the same time, we look we look at our communities that have 70% occupancy and less because.
Those are properties, we bought to fill and they have quite a few vacant sites and we believe we'll continue to.
To fill those sites.
We have our expansions that are coming online and exceptional markets Nashville is exceptional and countryside village.
South of Nashville, the expansion to complete we're already selling homes Memphis Blues. The next phase is complete and there's one called holiday just being complete right now which is virtually in Nashville, So all of those should.
Create positive additional occupancy and sales and rentals and on some of the other communities same store you may see a little bit of growth and vacancy because of the.
The fact theres been no turnover all in the past year.
Yeah.
I would add there is where we may have some turnover we have very strong demand just to reinforce that point and.
We've got waiting lists at many communities throughout the portfolio.
That's very helpful. Thanks for your time guys.
Our next question will come from Craig to Sara with B Riley Securities. Please go ahead.
Hey, good morning, guys.
You had the two properties in the northeast where the tenants had a right of first refusal to buy them.
Were they able to buy them or could those properties still come back to UMH.
So they are trying to buy them.
I'm not involved in the deal so I can't give you too much more information other than I know that a purchase and sale agreement has been presented.
To the seller by the residents.
I really shouldn't comment too much more than that but we reach out to the owner frequently even if it does fall out we're still very interested and are those acquisitions, but at this point I don't have much of an update other than it seems to be moving forward with the residents.
Got it.
Anna you mentioned in your discussions with Fannie Mae that are that you're trying to get them to use rental homes as collateral, but have you garnered any additional interest among other lenders who are willing to lend against our homes as collateral similar to the first bank and expanding our line of credit.
Well, we haven't really reached out to any of the others. Because we do have our first bank line and they are very interested in expanding that line, but our main focus right now is on the Fannie Mae deal because we think that obtaining low cost GSE long term financing is in the best interest not just of us.
But also of our residents because then we will be able to continue with our rental home program at relatively low rates compared to.
Great for apartments in the area.
Got it.
And I just wanted to circle back to your commentary on the portfolio did you say that you're planning on keeping it at a $100 million and if so does that imply that you're expecting to sell throughout 2021, given where that value today.
Yes.
Good day portfolio.
Before I mean.
Reasonably well and we are.
Expect the money to scale. This we invested and will continue to perform well and we will we do so.
Our portfolio folio.
As we as the Value's return.
As to what the properties that the retail loan.
I mean, some people wanted us to liquidate the portfolio in the middle of a pandemic, we said that that doesn't make any sense at all we don't need the portfolio. We use it for liquidity, we don't need it as much as we used to but it's always good to keep 100 million on hand, and we plan to keep 100 million on that.
Hands on the portfolio was is in value was so.
So off portions of it.
To date the portfolio was rising in value.
Great.
With the one community that is under contract for $10 3 million do you have a sense of when you think that might close.
Yeah, so that properties well into due diligence and there's a couple of weeks there. It should close at the end of second quarter, maybe beginning of the third quarter.
Okay great.
And Sam when Youre looking at the the rising cost of manufactured homes did you buy them from the manufacturers you mentioned, 40%.
Do you think the market will bear.
Rentals that will allow your underwriting to continue basically as it has in the past or would you expect maybe that there may be some compression of margins.
So you're giving me the great opportunity to talk about the fantastic, New UMH website, and our marketing team and our drone videos and basically UMH is change the image of manufactured housing communities.
Our rental communities are highly desirable and there are waiting lists we have you know.
I know our pricing power is limited, but the 40% increase in the price of the homes will not stop our occupancy because at this point, we can pass that additional cost on as we increase our rental home portfolio by about 800 to 900 units this year.
Some point, where the prices could go up enough, where I couldn't say that but but this 40% increase because over the last three to five years, we have truly created a market for rental manufactured housing.
Right.
Word of mouth is incredibly at our favorite people living on a rentals are very happy with the product and the pricing they tell their friends. It generates additional customers and again the drone videos on our website and the friendly nature of our website.
Provides a lot of new customers and.
We've completely changed the image of the rental home community and it's working very well on our favor I'm going to repeat what Sam said, because I go on Zillow.
At least every month and see what the competition is and in a general ASP.
Estimate for <unk>.
14, $100 a month, you get two bedrooms, and one bass and you go to UMH. So you look at the drone videos you look at the lovely upscale communities and for 800 miles. So you get three bedrooms and two best Anna.
We think our product is very very competitive and we do regret the dramatic cost rise in costs. This is amazing that the.
Homeless rising so much yield cos added value.
But oh, we have a goodbye.
To stay competitive and we will.
Our waiting lists we obviously aren't competitive.
Okay. Thanks.
Yeah.
Again, if you have a question. Please press star then one to be joined into the queue. Our next question will come from Brian Holland with Aegis capital. Please go ahead.
Good morning, and thanks for taking my call.
Good morning, Thank you.
Just wanted to talk a little bit about the sales program UMH sold 73 homes in the first quarter versus <unk> 62, a year ago.
What is your near term ability to ramp that up look like and with the 8100 rental homes occupied.
What is the demand from existing tenants to potentially purchase some of those.
So on the last part first.
We don't do a lot to encourage residents to purchase the rental homes, we sell them the homes if they want it because if they are staying longer than three years, it's better for them, but in fact in the last months, we recognize that because replacement costs is up 40% if you've taken on older.
Anna and I'm talking about less than 10 year old rental home and you were marking it up 30% over what we have into it.
Would still cost us money to replace that home replacement costs would exceed what we sell the house for so we really have no.
Major incentive to sell rentals, because we're going to have to replace the home and the replacement house is going to cost more than the profit margin on the sale of that helps of course, if we can market up more than 30% that would change that but but at any rate with those numbers, we don't do it on.
On the sales we have the ability to ramp up sales and we are ramping up sales and sales might've been profitable the first quarter, but we opened up we had already opened.
More than a year ago, the port Royal sales center, but and opening a new sales center you have various problems and so the first problem was we couldn't sell homes fast enough. Then we picked up the demand that we were selling homes fast enough, but the staff wasn't doing a good enough job on delivery.
Now we are completely.
Operating efficiently, we sell homes, we set them up and everything is going well.
But we had some losses on some of those homes in the first quarter that affected our profitability and so the future looks very bright because we fix these problems. Our sales are growing the profit margins are growing and you know it takes time to train people. It takes time to open sales centers.
And when you do something new like a new sales center things do go wrong and you have to fix them, but we're in the process of doing that and anticipate growing sales and growing sales profit and the future. We also have expansion that we are selling into so that will increase sales.
Thank you.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Samuel Landy for any closing remarks.
Okay. 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 will be participating at NAREIT REIT week in June which will again be a virtual event and hope you'll be able to join US we look forward to.
We're reporting back to you in August with our second quarter 2021 results. Thank you.
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