Q3 2021 UMH Properties Inc Earnings Call
Good day and welcome to the U N H properties headquarter 2021 earnings conference call.
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After today's presentation there'll be an opportunity to ask questions.
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Please note visit that is being recorded it is now my pleasure to introduce your house Miss Meli Madden Vice President of Investor Relations.
Thank you Ms. Madden you may begin.
Thank you very much up right. There. In addition to that thank you. That's the filed with the S. G. C. Yesterday, we have fault and then we'll get the third quarter supplemental information presentation.
The supplemental information presentation, along to the dark in queue are available on the company's website. If you have made that sweet.
I would like to remind everyone that certain statements made during this conference call. We shall not historical fact, maybe doom forward looking statements within the meaning of the private security just litigation format of 1995.
What were looking state months, that's gonna make them to school are based on our current expectations and involved with risks and uncertainties.
Although the company to do is fix dictations 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 should you from with Julie from expectations.
Are you building the company's third quarter 2021, <unk> released in filings with the Securities and Exchange Commission.
The company disclaims any obligations to update that's forward looking statements.
In addition, you in today's call, we will be discussing <unk> financial metrics.
Conciliations of this non-GAAP financial metrics to the comparable get financial metrics as well that's explanatory. Unfortunately language are included in our earnings release supplemental information and that historical Assisi filings.
Having said that I would like to introduce management with us today <unk>.
<unk> chairman.
Samuel <unk>, President and Chief Executive Officer <unk>.
<unk>, Vice President and Chief Financial Officer.
Bread theft, Vice President and Chief operating Officer.
Jim like if I couldn't have kept on markets and Daniel <unk> Vice President.
It is now my pleasure to turn the call over to you and make <unk> and Chief Executive Officer Samuel Lincoln.
Thank you very much Nelly, we are pleased to report or third quarter earnings results normalized Epiphone for the third quarter was 23 cents per share as compared to 18 cents per share last year.
This represents an increase of approximately 28% over the same quarter last year for the first nine months of the year normalized F. F. O was 65 cents, which is an increase of 30% over last year.
This is the six quarter in a row that you'll nature's maintained or increased or normalized F. F O for sure.
Our business plan of acquiring value of communities, making the necessary improvements in implementing aggressive rental sales and marketing program has been extremely success.
Not only have we generated increased earnings for our shareholders, but we have also provided countless residents with high quality affordable housing that previously was not obtainable for them.
And invest pending UMH as an investment in providing affordable housing.
The results that we have reported quarter after quarter or starting to be recognized by the public markets.
We've achieved an equity market cap of over $1 billion and growing.
Our access to capital as attractive rates has never been better.
This reduced clubs of capital through both the equity and debt markets will allow us to drive additional F F O growth through investment internally and externally.
It will also help us to redeem our outstanding $247 million of serious C. 6.75% preferred stock in July of 2022.
And $215 million of our series D 637, 5% preferred stock in January of 2023.
Reducing our cost of capital on these preferred series could result in additional 20 to 30 cents per share depending on the percentages and rates of equity and debt utilized for the redemption.
The redemption of our preferred stock combined with our ability to continue to grow earnings organically and increase property values positions you image to outperform in the coming years.
Total income for the quarter increased 11% over last year to approximately $48 million.
This increase was the result of an 11% increase in rental unrelated income and a 15% increase in sales of manufactured homes.
Are operating expense ratio improved to 41.8% from 44.7% last year.
Same property result remain strong for the quarter same property occupancy was up 190 basis points or 435 units overlaps here.
Sequentially Saint property occupancy increased by 44 units.
Saint property, NOI increased 14.9% or $3.1 million as compared to the third quarter of 2020.
You're to date same property N O y increased 14.7% or $8.9 million as compared to last year.
This is the eighth quarter in a row that we have achieved double digit the same property N O y growth.
During the quarter, we added 96 homes to a rental portfolio bring your total portfolio to approximately 8700 rental homes.
A quarter and a rental home occupancy rate was 95.1% the rental home business has continued to meet our expectations demand for rental units throughout our portfolio remains robust the availability and price of inventory remains our biggest concern home prices are up approximately 40% from pre.
Covid levels.
We are aggressively ordering inventory and have inventory being delivered throughout the portfolio.
As our manufacturers open additional factories and increased production, we will be able to obtain more homes and fill sites at a pace that is in line with previous years.
Gross sales for the third quarter, where seven $8 million, representing an increase of 15% over last year.
Year to date sales volume is at $21.8 million, representing an increase of 45% over last year.
Here to date or income from sales is approximately $1.5 million as compared to $445000 last year.
We are happy to report that we have broken our annual sales record that was set last year of $23 million in just the first three quarters of this year.
This year, we have sold a total of 294 homes of which 153 with new home sales and 141 were used home sales.
Our average sales price was $74000 as compared to 60000 in the prior year period.
We finance, 61% of our home sales in our portfolio now has a principal balance of $51.8 million at a weighted average interest rate of 7.1%.
Our communities are reporting strong sales demand and we anticipate continued sales growth for the remainder of the year.
Our sales operations biggest concern is also the availability and pricing of our inventory.
We have expansion sites coming online in markets that are experiencing strong sales demand.
We anticipate completing the development of approximately 225 site in 2021.
In 2022, we plan on developing 400 to 600 additional loss.
We continue to seek acquisitions that meet our growth criteria. We have offers out on several communities and we are working on building our pipeline D.
The acquisition market remains competitive.
Prices have stabilised in value add communities continue to increase which is limited a recent acquisitions, but increase the value of our existing portfolio.
We have decided that now is the time to build or buy new communities from developers.
We have entered into contracts to purchase three all H to be built communities in Florida.
As communities will contain a total of 804 developed sites for total purchase price of approximately $89 $9 million.
Construction of the first community is expected to be complete in the first quarter of 2022.
This community will contain 219 sites and has a purchase price of approximately $23 million or $105000 per site.
The communities will be highly amenitized with clubhouses pool, bocce ball pickle ball splashed pools dog parks and more.
We are working on additional development deals and anticipate growing our pipeline soon.
To help fund these acquisitions and negate the short term impact development deals have on <unk>, we are negotiating a joint venture with an institutional investor.
The joint venture will allow us to do a higher volume of development deals.
We have built an irreplaceable platform that it's delivered exceptional results time and time again, we have purchased and developed great communities, but even more importantly, we have created a great company with great people that can continue to achieve exceptional results for decades to come and now Anna will provide you with greater detail.
On our results for the quarter.
Thank you Sam funds from operations or F. F. L was $10.8 million.22 per diluted share for the third quarter of 2021 compared to $4.5 million or 11 cents per diluted share for the prior year period.
Normalized FFL, which exclude certain non-recurring items was $11.1 million or 23 cents per diluted check for the third quarter of 2021 compared to $7.4 million or 18 cents per diluted share for the prior year period, an increase of 28.
[noise] percent on it per share basis.
These increases would do 12 draw operating performance as redemption of our series be preferred stock last year.
Bentley related income for the quarter was $42 million compared to 36 $4 billion, a year ago, representing an increase of 11%.
Community NOI increased by 16% for the quarter from $21 billion in 2022 $23.4 million in 2021.
These increases were primarily due to community acquisitions. The addition of rental home the growth and occupancy and an increase in rental rate.
Our same property monthly statement increased 3.9% and our monthly homeland increased 3.8%.
Our average monthly statement is now $474 and our average homeland is $811.
Saint property occupancy increased 190 basis points or 435 occupied site over the last year.
Same property occupancy is now 87, 3% and same property rental home occupancy is 95, 6%.
Sales of manufactured homes increased 15% for the quarter from six $8 million in 2020 $278 million in 2021.
Or 15% increase in sales resulted in a sales gain of $611000.
Year to date sales have been approved 45% from $15 million last year to $21.8 million this year.
Our sales gain for the year is at $1.5 billion as compared to $445000 last year.
During the quarter, we continued to strengthen our already strong financial position.
We entered into a new ATM program, while common stock and sold approximately 1.1 million shares of common stock at a weighted average price of $23.70 per share.
Generating gross proceeds of $26.2 million and net proceeds of 25 $8 million after offering expenses.
These proceeds will be used for general corporate purposes, which include the purchase of manufactured homes for sale leads to customers acquisitions of additional properties expansion of our existing communities and pain down short term debt on a temporary basis.
During the quarter. We also obtained a six 1 million dollar mortgage on our highly acres community.
The interest rate on this mortgage is fixed at 3.21%.
This mortgage matures on September 1st 2031, with the principal repayments.
Just on a 30 year amortization schedule.
Proceeds from this mortgage will use to repay the existing 2.1 million dollar mortgage which had an interest rate of 6.5%.
The refinancing of this community demonstrates attract equity within many of our income big properties.
As we are able to refinance how communities, we will realize the value created by our business plan.
As we turn to our capital structure at quarter, and we had approximately $507 million in debt.
Of which $467 million with community level mortgage debt and $40 million with loads table.
92% of our total debt is six straight the.
The weighted average interest rate on a mortgage debt with 379% a quarter and compared to 3.81% in the prior year.
The weighted average maturity on our mortgage debt with five three years compared to six three years last year.
At quarter, and you may have a total of $462 million in perpetual preferred equity.
Our preferred stock combined with the equity market capitalization of $1.1 billion and our $507 million in debt results in a total market capitalization of approximately $2.1 billion at quarter and <unk>.
Representing an increase of 43% over the prior period.
From a credit standpoint.
That to total market capitalization was 20% our net debt less securities to total market capitalization with 16% al net debt to adjusted EBITDA with four eight times.
Net debt securities to adjusted EBITDA with three seven times.
Interest coverage with four two times and a fixed charged coverage with one seven times.
From the liquidity standpoint, we ended the quarter with $82.4 million in cash and cash equivalents at.
Is $50 million available on our credit facility with an additional 50 million.
Potentially available pursuant to an accordion teacher.
We also had 38 $5 billion available on a revolving lines of credit for the financing of home sales and the purchase of inventory and $15 million available on a line of credit secured by rental homes and rental home leases.
Additionally, we had $103 million in a wheat securities portfolio that it's currently unencumbered.
The portfolio represents approximately six 8% of our of depreciated assets.
We live in our portfolio to no more than 15% of our depreciated assets, we are committed to that increasing our investments in the meat securities portfolio.
During the quarter, we sold $7.2 million of securities for a realized gain of $2.6 million, we plan on maintaining us securities portfolio at approximately $100 million.
We are working toward.
Refinancing at 675% CVC preferred stock and our 637, 5% savings D preferred stock which comes due in July of 2022 at January of 2023, respectively.
We plan to utilize the combination of equity and debt to drive significant earnings growth, which Sam highlighted earlier.
We have already begun to position ourselves for this refinancing we.
We believe we can achieve savings of 200 to 300 basis points the incremental FFL from this refinancing as well as the continued organic growth in earnings positions the company to prosper for years to come.
And now let me turn it over to cheat before we open it up for questions.
UMH, whose basic business of providing quality affordable housing is never Britain better.
Strategy of acquiring Valuev communities below replacement costs with vacancies and rehabilitating them.
Could not have been better timed.
Since 2010, we've purchased <unk> communities can taping 17200 sites with a blended the occupancy rate of 75%.
These bacon sites that were acquired provide us with a runway for future occupancy in revenue growth.
As we've previously mentioned turnaround acquisitions take two to three years to come online before they start to positively contribute to earnings.
The capital improvements good management and investment New housing stock has allowed us to drive best in class same property occupancy and NOI performance.
We still have 3300 bacon sites within our existing portfolio to fill in 1800 vacant acres that could potentially be developed into approximately 7300, new homesites.
These vacancies for the expansion science may provide us with the runway to continue to produce similar the same property results moving forward.
In addition to the anticipated improvement for my operations.
We are working on a strategy to redeem and replace so outstanding preferred series with lower cost equity and debt.
We reduced cost of capital could drive earnings growth of 20 cents to 30 cents per share range.
The future is bright for your image, but our nation faces an affordable housing crisis, we continue to focus on a social mission of reviving the nation with quality affordable housing.
Our elected representatives on both sides of the aisle recognize the problem, but developers have in providing this housing.
We are working with local state and federal officials as well as the manufacturing housing them to do to help spread the message that manufactured housing is the best way to provide unsubsidized quality affordable housing.
The current administration has been very supportive to build a new manufactured housing communities and we expect to see additional development opportunities as the zoning barriers are addressed we want developers realtors to know they can earn significant profits finding us manufactured home community development projects throughout the country.
We believe developers can contract lamps and ceiling to quality community obtain full approval. So then sell it to us and in approximately $10000 per approved site depending on the market.
We believe getting this message out could make us the fastest growing provide of communities containing a combination of resident owned and resident rented manufactured homes in the country.
We also expect more favorable financing for our residents.
Giving them the ability to finance and refinance their homes.
Downpayment assistance programs currently being contemplated by the federal government should make manufactured housing a realistic housing alternative for the underserved portion of our population we are committed to playing a crucial role in solving the affordable housing prices, those who seek investments with worthy social go.
<unk> should consider a company.
We would now be happy to take your questions.
Thank you we will now begin the question and answer session.
To ask a question you May Prescott then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys.
Is it any time your question that's been addressed and you would like to withdraw your question [laughter].
And two.
At this time, no pause momentarily to assemble our roster.
The first question comes from Rob Stevenson with Kenny. Please go ahead.
Good morning, guys, Sam I know you would it be reasonable on renewals with tenants, but on new leases. How are you thinking about pricing and when you look at the apartment reached most of those guys are up double digits on new leases. These days, even the ones that didn't get.
Hammered in 2020, how would you sort of you know factoring that in as you guys go through pricing on new leases.
Well as you know when we began this manufactured homes and manufactured home communities had an image problem and by being very modern it on our rent increases just 4% per year, we have dramatically improved.
The word of mouth pertaining to manufactured home communities at least those managed and operated by UMH properties. So for existing residents people, who live in homes the day on our homes.
Rent from US we are shooting for a 4% rent increase and I want to go over something just for a second before I answer the rest of that.
When you look at real estate in real estate companies the.
The reason people left shopping malls and other forms of real estate is the inner to net made shopping more competitive elsewhere.
I think that the problem with real estate companies is people were not operators they weren't running a business a business person tries to reduce expenses and increase the value the customer receives for the product and that's our mission and that's our goal so existing residents to the extent we can control it will.
We receive 4% rent increase to the extent inflation makes us go above that we have the pricing power to go above that now there's a difference between existing residents and new residents on new residents somebody buying a new home and renting a site from us from the first time, we can put that rent to whatever the <unk>.
Market will will bear, which may in fact be at 10, 15% increase over existing and the same goes on rental homes, but for existing residents our goal and our job is to keep rents as lowest possible and our goal there we want 50% expense ratio.
Yo if residents pay water and sewer and 30% expense ratio if it's separately metered. So if we can achieve those goals. That's a sufficiently as a community can operate and you'll be there when you hit 90% plus occupancy and that's our goal, but our goal is to do it without raising rents more than.
Only 4% for existing residents.
Do you guys track same store new lease growth.
On a quarterly basis do you have that number if you too.
We don't have it in front of us, but it's something that we are starting to look into now and we'll come back to Europe and other time with the answer there.
Okay.
And then Sam can you talk about home sales demand versus ability to get the homes man you guys did a good amount this quarter, but how much more homes could you have sold if you had access to more inventory cause. It substantial are you selling about what you would even if the inventory wasn't constrained.
My belief is that substantial book breath has the exact numbers. So go ahead, yeah no absolutely.
Home sales numbers first of all we're very happy with them they were up 15% on the quarter and were up 45% on the year.
Looking at our second quarter numbers, we had a lot of inventory in place set up and ready to be sold which is what allowed us in the second quarter to drive I think it was 91% sales growth. So.
And speaking with all of our salespeople and looking at the Margaret market and looking at the finance applications in place. We do have a lot of deals pending and we do expect to produce similar sales growth, but it's the same thing on the rental and.
Same property occupancy was up 190 basis points for 435 units year over year, we were getting used to it being up 280 to 320 basis points and up 692 780 as of year end. So we are aggressively ordering homes. We do think that we have a lot of inventory that will land in the fourth quarter of the first half.
Of next year to allow us to produce similar results, but we're certainly inventory constrained.
If you order a home today, how long has it taken for you guys to get it in.
<unk> on the site.
It depends on the market and the manufacturer, it's coming from but anywhere from six to 12 months.
Okay. So you guys are almost at this point ordering for 2023.
We are having those discussions as we speak yes, okay.
Okay.
And the last one for me.
Giving you your commentary about the looking to replace the preferred how far in advance are you willing to put in replacement financing there and sort of carry those sort of double sort of hit for some period of time in terms of twice the financing I mean would you do it six months early and Carrie.
You know the the additional financing for that six months, if the rates on both equity and debt are advantageous is it gotta be sort of more within three months, how do you think about that.
Wish you a great right six months is great because we do not believe the dilution is very much we have calculated it I don't have it in front of me, but we've already started that's why we have out ATM open we've already waves up quite a bit of money on our ATM. We have a cash available we have cleared a lot of our bank.
Lines, we have availability on a rental home line I'll note receivable lie and if we need to we can also tap into.
Our securities portfolio.
Okay.
Right. Thanks, guys appreciate the time.
Thank you.
The next question comes from Keegan Karl with Bahrenburg. Please go ahead.
Hey, guys. Thanks for the questions I noticed touched on a little bit earlier, but could you just give us some more color on the acquisition pipeline going forward just kind of do reiterate just kind of a on low volume. This year's is a truly a function pricing or is there just not as much out there that you guys think fits your portfolio at the moment.
Brett is going to be more specific but.
No.
We try to be very opportunistic as two acquisitions and to the extent you tried to make them happen they become overpriced.
When when you have a willing buyer on willing seller the price can be the right amount, but right now there's far more buyers and sellers and it creates issues, but go ahead breath no I think Sam hit the nail on the head. There we are absolutely looking for existing acquisitions. We do have an offer out and are negotiating a contract that can't really touch on that too much more.
At the moment.
I think earlier in the year, we gave acquisition guidance of $25 million to $50 million in value add and stabilize deals were going to come up just short of that most likely this year, but we're happy with the $18.3 million, we were able to get for growing the portfolio in the areas. We want to we're seeing good performance, there and talking about the pricing a little bit as Sam mentioned, there are so many buyers and their art.
<unk> available, but because of how many people are coming into the market. These cap rates are compressing to points, where we look at the cost per site. We look at the improvements we need to make we look at the management the payroll R&M that needs to go into these properties to.
Turn them into your image quality communities and we just don't think that in most cases. The returns are there. So we're looking at that and comparing it to some of the opportunities we're seeing on the development frame and we're thinking that we are really liking what we're seeing there at the returns are penciling out to where we want them to be there will be coming online and accretive in similar to <unk>.
I'm lines as the value added acquisitions, and we will at the end of the.
Infill process have a brand new property with brand new infrastructure brand new homes versus what we see on the value add front. So if the opportunities are available and again I do think we still will do some value added acquisitions, we will absolutely do them, but we're finding quite a bit on the development side as well.
Yeah, just kind of on that front baseball you see how many new Greenfield development opportunities are you guys seek out there and is typically weighted towards the southern states.
Well so it's a limited number of yes, it's in the southern state, but the message that.
I think we put out very well and are prepared remarks, and we're working with M. A giant everybody else to get the message out.
Developers haven't thought about building manufactured home communities, because so few have been built.
In any market you could determine what acreage should cost you know what the engineering should cost and we are telling developers go Buck you develop a go contract that land.
Do the engineering get the full approvals and we'll pay you at $10000 per lot profit to buy to buy it from you fully approved so on 250 lots. They can make 2 million five we got that message out in the south in Florida about three years ago and now we are contracted to purchase three separate to be built communities.
So as we get that message out and people listen to us and realized that they could make that money at the approval stage or they can build it and make additional funds for building it and selling it to us at at that stage.
<unk>.
We see it as as.
The system is jammed up nobody's tried to build communities in 20 years, we get this message out people will try to build communities and we're here as a buyer. So we don't know how well, we'll do but we think there's 50 states and we have a 40 more states to get into and this will provide the opportunity to get there.
Got it just one one final one for me just bigger picture could you give us some more color of the White House has proposed affordable housing plan, where you guys to yourself sitting in and then I guess how did the additional opportunities from this proposal you know how do they fit relative to previous administrations.
We're very excited Jean landed chairman.
We're very excited about what's being proposed.
The various items are a good comment new and we hope they get adopted.
One is for the people who can afford a down payment.
Don't have a a rich uncle.
They have been put out there.
Taken out of the housing market and while the other <unk> other club classes of people have benefited from advised in the home prices.
Just taken out of the system and both parties are proposing both the Republicans and Democrats proposing a assistance.
When bill in the Senate I think it was 15000, a person first time homebuyers overboard a home before that they provide the 15000 another bill is for 25000.
Can't say that there will be passed but we're hoping there will be passed and we know how many thousands of people we turned out because they don't have the downpayment.
The people have enough trouble paying the $800 plus the $800 security they don't have the $1600 Bill.
To have the governments.
Proposed a program to lend them 15000, 25000 will have immediate an immense effect on the demand for manufactured housing and we hope These bills pass and then the other the the.
The government this is a crisis.
We don't use that term lightly.
You need 456 million more homes, you have to build not.
100000 homes, a year, we need to build 200000 homes, yet the industry needs to build at least 500, new communities of 200 homes, a piece of 100000 homes and that's a drop in the bucket as compared to the need for.
Housing which is immense.
Sure that is there in the home prices reflect that they would go up 20% in one year because of the demand exceeds the supply.
The government is behind any steps that will help solve that problem and I have to give my son, Sam Lindsey a lot of credit or debit credit. The staff. We've been spending a lot of time with governors secretaries of housing Senators and the manufacturing housing Institute is working on this.
And we think there's going to be a positive response and for the next 20 years, we hope that the nation turns to manufactured housing to alleviate the crisis in affordable housing.
Got it thanks for your time guys.
The next question comes from crank to Sarah with be Riley.
Ahead.
Yeah, Hey, good morning, Sam for years, you put an 800 to 900 homes rental homes into your communities and obviously, having some challenges with inventory today, but given the visibility of what's your ordering well into next year can you give us some color on what you expect to do here in 21 and maybe sore.
What's your expectations are for 22, another year, maybe light of 800 or any thoughts or would be helpful.
So 2021, we wanted to add 900 rental homes and sell 200, new homes, we're going to be short of our goal because of the unavailability of housing, but I don't believe it's going to affect the numbers because the pent up.
Inventory that we had from a year ago. The inventory that was being set up et cetera will allow us to have adequate sales and adequate.
Rental unit growth in 2021, and as you can see where at the end of the third quarter and our numbers have not been negatively affected the winter season is generally the manufacturers slowest season, so they have the opportunity to catch up.
And so if they didn't catch up.
We could have a real problem in the first and second quarter of 2022, but I expect they are going to catch up a bit so that.
In 2022, we will get back to the ability to at 900 rental homes and 200, new home sales and so we could have done even better this year, possibly whatever we do in the first quarter of next year, we could have done better if we had more homes, but I don't think it's going to negatively impact us.
Yeah, just to add a little bit as to what the inventory looks like right. Now we've got 208 homes that are on site and various stage of setup.
Those homes assuming.
They should fill during the fourth quarter during the first quarter of next year. We've got 430 additional homes that were ordered prior to June of this year I mentioned earlier.
Seeing her six to 12 months. So those homes are starting to arrive and should arrive throughout the first quarter of next year, giving us a good pipeline of homes to continue to drive reasonable same store occupancy growth.
Got it no I appreciate that switching gears you mentioned that you were looking to buy three communities that are <unk> 90 million. One is gonna be completed in the first quarter, but can you talk about the others are those expected to be constructed at some point in 2022 are those further out in the future.
Yeah. So the other two are expected to be delivered in the fourth quarter of 2022. It is development and there are a lot of moving parts. So I can absolutely guarantee that but at the current plan is to have them opening at the beginning of the fourth quarter and if anything changes will keep you posted.
Got it and given that these are brand new communities are you thinking that you're going to continue to have them renew at 4% increases or is there a thought maybe pushing that a little harder because they are.
Newer than what you typically happens you value at communities.
Newark, New communities pricing is completely different than anything we currently own number one all the infrastructures brand new lots of brand new clubhouse amenities, so new communities the pricing and and my conclusion is that at any company. The person who does the pricing is one of the most important.
Pull at the company.
We will do plenty of market studies to make sure that using manufactured homes and manufactured home communities makes us the lowest cost producer of a quality housing, but we will not be lower than the market will bear. So we will very carefully evaluate how many dollars can be earned in the sales Prof.
Fit and where the rents should be to achieve those percentage operating incomes, we spoke about and everything we looked at in terms of the very limited number of communities being built in the country and what homes are selling for manufactured homes can be over $200000 and new developments in the country.
And <unk> and these new developments, but before off to say 600, 700, a month and year of right online with what we are projecting here. So yes. So so it's based on what the market would bear as well as knowing where the lowest cost producer.
Okay. Thank you I appreciate it.
The next question comes from Henry Coffee with Wedbush. Please go ahead yeah.
Yes, good morning, and thank you for taking my question I know you put it out there but.
These three communities represent how many sites.
804 total sites the first one to.
<unk> to be delivered in December January I should say the first quarter of next year is 219 sites.
And the the soda rent up cycle and the JV how do those work how does that work is at the J V is going to hold the assets to the to the rental cycle is completed or.
Yeah, how does that all laid out.
Yeah, I've got to be a little bit careful because the JV agreement isn't signed yet, but we are working on it.
We will the JV will fill the properties there will be a hold period at certain times throughout their triggers that your image could either buy it or it could be sold to the open market, but without going into too much detail. That's the basic strategy. The JV and also being the managing partner will be responsible for the in fill of the project.
Just add to that.
So the problem with development is you have incredible capital costs that do not earn money when you begin and that could be a 357 year period right. So you're incredible capital costs costs, you money filling the community costs, you money no developer and make some money on the first phase you make money on <unk>.
Later phases with that in mind by going to a joint venture development you reduce the capital we're tying up we collect immediate manage fee management fees for operating it is both assets under management. So you turn a negative into a positive. It immediately provides <unk>, whereas if you did it yourself it would not provide fr.
And then you are adding value for both yourself and your joint venture partner that you'll capitalize on so we're very excited about the concept and it does.
Give us the ability.
Again, we see ourselves as all of America's great companies.
Walmart Burger King Mcdonald's Dunkin Donuts, we have a great product that people want and now we have to bring it all 50 states and the joint venture.
Provides us the opportunity to do that.
No I, just kind of continuing on those sorts of themes.
The the some of the residential mortgage broker bankers, we work with have begun providing to their brokers.
Basically manufactured housing finance direct finance.
Developing programs they both seem to be coming to life just this year.
How would the availability of that sort of financing of agency GSC.
Dancing the same thing, we all get how would that change the equation for your residence.
And for your own approach to financing acquisitions.
Yeah. So the lower cost housing is the higher the demand so reducing the interest rate that people pay increases demand.
The government is working on.
They need to work on two things one is zoning barriers and to the cost of financing for manufactured homes and they are working on both issues UMH.
Began financing manufactured homes in 2001 was extremely successful at it and has always charged a lower rate than anybody else on our financing.
The various laws enacted in 2009.
Prevent us from financing many of the people who would benefit by owning their house, but they can't be financed because they don't mean debt to income requirements.
They don't.
Have adequate reportable income and they may have poor credit from being foreclosed out of a 300 400000 dollar house and now they're moving into a 70000 dollar house. So the lowest make all of those people on financial which is why we rent nine homes for every one we sell but any.
Improvements in the financing.
Good for the industry and good for our residents.
And then you mentioned.
Would that change your own approach I know, you're basically financing your own.
Your residents right now would you move that.
Take those assets and move them over to the agencies or or what is your thought process there.
Well to the to the extent the agencies become significantly less expensive than our lending are are loans become saleable. They can be securitized and sold it can be sold that is as is or they can be the residents loan can be refinanced. So we would be open to all of those things are purpose again.
Keep keep communities at 95% plus occupancy at the expense ratios, we've talked about and lower Finance course, we'll do that for us.
And then just kind of related to that topic. You know you did you did give US. One example of how you have been able to to tap the hidden value in your properties with refinancings, how much of that.
Central refinance will play into the redemption of the preferred.
Okay.
We have coming up in 2022, and 2023 approximately $100 million in mortgage debt.
We believe that we will be able to refinance that for over $200 million and pick it up and take out about $100 million of trapped equity.
And would and is talking about is strictly on the property level. We also have our 8700 rental homes that we paid cash for and we are working every day with the gsc's out with banks to get them to directly learned on those houses if that occurs that's significant money start imagining.
8700 times $70000 and we can get that financing from the houses directly so we haven't jump that hurdle, yet, but we work on it every day.
What is what is their resistance what is the primary resistance point.
So so in the beginning and I'm going back five plus years.
They said, it's too difficult to track the collateral have you have a community of 250 homes and we own 125 of those homes. How how is the government sponsored energy to kind of know which ones. They are alone on and which ones. They don't and that's when we came to the conclusion look we'll do Memphis blues as in all rental.
Community and you can you can do the mortgage on the land in the home at the same time lend us on both the land and the home at the GSC rates and we've had very very positive feedback on that and once we receive nine.
95% occupancy of Memphis Blues, which will probably happen in the next 18 months.
And the incomes proper, we will do that deal and it will be the first one and then you go to.
While we were working on that we said to them look.
You've allowed 60% rental homes in the community.
With technology being what it is you could stick a computer chip on our home and you can track it.
Why can't you finance.
Mixed use community and we've achieved that with private banks at very reasonable rates and we may achieve that with the gsc's and we're very close to achieving it and that's where we are today [noise].
Great. Thank you for answering my questions.
As a reminder, if you have a question. Please press star doesn't want to be entered in thank you.
The next question comes from Brian holding with age is capital. Please go ahead.
Good morning, and thanks for taking my call.
Thank you.
On the residential development deals in Florida at 105000 per pad what returns on capital or are you guys expecting.
Yeah. So we.
We are looking at.
Returns, including sales profits and the 6% to 7% range basically taking the sales profit and backing it off of the $105000 cost per site. If you leave the 105000 site in there are yields once stabilized they're going to be in the four and a half to five 5% range, depending on the property and the infill right we.
Are also seven years looking at Irr's unlevered in excess of 75%.
And keep in mind the history of manufactured home communities is the individual.
People built communities and sold the home to pay for the lot and then collected a lot rent forever. Thereafter. So you know in the 19 seventies eighties. It was typical to build a community and sell your home for <unk> with the profits of that sale going to pay for the lot.
Because they were all the various downturns and housing.
That hasn't occurred in many years that anyone 100% paid for the lot from the sale, but looking at things today I don't find $105000 as an impossible profit margin on manufactured homes in Florida. So the potential exists that you could earn 100% of the cost.
To build a lot from the sale, so whether it's a 100% 50%, 30% I don't know it depends on the market on at the time you are trying to sell the houses, but it's all doable.
It kind of leads to the follow up I guess, how many homes within the new developments are you kind of underwriting that you think will be.
Owned versus will lots of it will become rentals.
We also don't know the answer to that question because our objective is to go fast on cash flow right. You don't want you don't want to have 50 lots sitting there without activity occurring quickly. So whatever it takes to get that activity going quickly whether it's renting the homes are selling the homes, that's what we're going to do.
And we don't know the answer to that question, yet we will be marketing them for both sale or rent, but whether we do sale or rental it's going to provide inadequate return exactly in the yield branches. I gave you were basically the difference between sale and red.
Got it thanks for that color and then the last one for me over the last 12 months across all your properties, how many new lots have been developed and rented from your vacant acreage uhm. How confident are you that some some portion of your 1800 vacant acres can be developed and rented.
Yeah sure. So this year, we completed the development of 225 sites.
We're happy to report that they are selling homes are filling site quickly.
Again, the main problem is if we had more homes, we'd feel more sites at a more rapid pace, but we're running adequate sales profits at those locations and.
For 2022, we are projecting four to 600 units.
We think that 400 is very achievable, we could get to 600, depending on whether or not we can obtain some lender approvals to do the development.
400 sites, we're looking at in 2022 five of those communities and 253 sites are in Ohio one's in Maryland about 70 sites ones in Tennessee, 76, ice and one's in Indiana, Pennsylvania, and that's 35 sites.
We are very successfully built lots in the past week.
We have Craig cost or our attorney we have Jeff uric, an engineer who has an assistant engineer Alan Patterson. So we have three professionals on staff.
To work with outside developers.
Work with outside engineers outside attorneys.
We also used the services of Dan Westfall, Who's built more a manufactured home communities than anyone in the country. So we have a very significant team to get approvals and build sites.
Thank you guys.
This concludes that question and answer session I would like to turn the conference back over to Samuel Landy 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 is always Jan Anna Jean Anna Brett and I are available for any follow up questions. We look forward to reporting back to you in February with our fourth quarter and year end 2021 results. Thank you.
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