Q3 2022 UMH Properties Inc Earnings Call

Good morning, and welcome to UMH properties third quarter 2022 earnings conference call.

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It is now my pleasure to introduce your host MS. Nelli Madden Vice President of Investor Relations. Thank you Ms. Madden you may begin.

Thank you very much operator in addition to the thank you that we filed with the AGC yesterday, we have filed and I know you said third quarter supplemental information presentation.

This supplemental information presentation along with.

Our 10-Q.

Are available on the company's website at UMH that fleet.

I would like to remind everyone that certain statements made during this conference call. We try not historical fact may be use forward looking statements within the meaning of the private Securities Litigation Reform Act of 90 to 95.

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.

When you can provide no assurance that its expectations will be achieved.

The uncertainties that could cause actual results to differ materially from expectations are detailed in a company third quarter earnings release and filings with the Securities and Exchange Commission.

The company disclaims any obligation to update these forward looking statements.

No you shouldn't during today's call, we will be discussing non-GAAP financial metrics.

Installation of this non-GAAP financial metrics to the comparable GAAP financial metrics as well as explanatory and cautionary 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.

Gene Landy chairman.

Samuel Landy, President and Chief Executive Officer.

And a true executive Vice President and Chief Financial Officer.

But that executive Vice President and Chief operating Officer.

As you might guess, whereas presence of kept our markets and then you Lindsey executive Vice President.

It is now my pleasure to turn the call over to <unk>, President and Chief Executive Officer Samuel Landy.

Thank you very much nelli, we are pleased to report our third quarter 2022 earnings normalized <unk> for the quarter was 21 cents per share compared to 16 cents in the second quarter of this year and 23 cents per share in the same period last year. This represents an increase of 31 person.

Sent sequentially and a decrease of 9% year over year.

The sequential increase in normalized <unk> is primarily the result of the savings that we realized from the recapitalization of our $247 million, 675% series C. Perpetual preferred it is important to note that the preferred was redeemed on July 26, So we did not receive.

The full benefit of the redemption in this quarter.

The full impact of the preferred recapitalization increases normalized <unk> by an additional <unk> <unk> per share while the preparation for this redemption negatively impacted earnings in the first half of the year. We are pleased to have opportunistically raised capital at low rates, which will drive future earnings.

Yeah.

Operationally, we continued to perform well in a very challenging economic environment demand for our product remains strong in all of our markets. Our biggest challenge. This year has been the procurement and the setup of our homes. We are happy to report that we are making progress on the installation and occupancy of our rental homes.

We are replenishing, our inventory, which should provide a runway for earnings growth in the fourth quarter of this year and position us for another year of outperformance in 2023.

For the three months ended September 32022, same property rental and related income increased 5% and expenses increased 10%, resulting in NOI growth of 2% year to date same property rental and related income increased 6% expenses increased 9% and NOI increased 4%.

Fixed operating expenses are consistent with what we experienced during the first half of the year.

Personnel costs are increasing as we increase the scope of the company tree removal waste removal and travel expenses were elevated during the quarter as the result of wind stores during the quarter. We added 142, new rental homes to our portfolio as compared to 96 last year, resulting in a 48% increase.

Year to date, we have added 293 homes to our portfolio as compared to 448 last year.

Although the number of additional new homes added year to date is less than the amount added during the same periods last year. We are on track to have our 700 homes delivered to our communities. This year.

Moreover, as the supply chain continues to normalize we anticipate being able to add an additional 800 to 900 homes next year.

Our same property rental home occupancy rates remained strong at 94, 5% as we complete the infill of our communities and occupy these rental units, we can drive double digit income growth without aggressive rent increases bill.

Sales income from the quarter was up 16% and is in line with our expectations.

The increase in sales is attributable to the 23% increase in new home sales income year over year.

As with our rental program, we have strong demand for sales and anticipate growing sales as inventory becomes available.

I am excited to announce that we set a new monthly sales record of $4 million in August .

During the quarter, we generated sales income of $919000.

The average sales price for the quarter was $102000 as compared to $77000 last year.

We financed 63% of our home sales sales for the year or down 7%, but we continue to experience a strong pipeline of sales and believe we are well positioned for a good fourth quarter.

Our expansions are progressing as expected we have approximately 400 sites under construction at eight communities.

These are strong sales locations and should help us to drive additional sales income and growth in the future. We remain on track to deliver approximately 225 sites. This year and 400 sites annually for the next several years.

Year to date, we have closed on five communities containing 905 sites for a total purchase price of $44 million.

These are value add communities, which had an average occupancy of 53% at acquisition and we will benefit as we implement our proven business plan.

Two of the communities are located in Western Pennsylvania, One in Michigan, one in South Carolina, and one in Alabama, we continue to seek additional acquisition opportunities that meet our growth criteria.

While these acquisitions position the company for future growth. They do require a two to three year turnaround period prior to positively contributing to our operating results. Our current acquisition pipeline contains two communities containing 579 sites for a total purchase price of 42 million.

These communities are located in New Jersey and Ohio.

Hurricane Aeons path went directly over our community in Sebring, Florida as a category two storm with sustained wins of over 80 miles per hour and much higher Gus we are proud that our community and our homes withstood the storm with minimal damage.

We continue to make progress in filling a dislocation and look forward to developing new manufactured housing communities.

Additionally, through the joint venture with Nuveen real estate, we have two communities to be developed under contract containing 585 sites for a total purchase price of approximately $68 $8 million.

These communities are both located in Florida and will be delivered fully constructed and ready for homes construction of one of the communities has commenced and we are anticipating a late quarter for 2022 early quarter, one 2023 closings.

Construction of the other community is expected to begin later this year and we will likely close in the third quarter of 2023. Additionally.

Additionally, we have three land deals under contract that will be delivered entitled for 423 sites in Florida, Georgia, and Pennsylvania, We will acquire these communities entitled but unimproved and management the development process.

The aggregate purchase price for the land and entitlements is $16 $6 million construction at these communities is expected to be approximately $16 million to.

The joint venture structure will result in a lower basis and higher overall returns in total the joint venture has a pipeline of 1008 sites for a total investment in land and improvements of $100 million.

We are pleased to have been able to generate this pipeline in a relatively short period of time.

Our basic business model of operating manufactured housing communities remains fundamentally sound, we have investments and value add acquisitions and expansions where the capital has been deployed and we are currently completing turnaround work or redevelopment.

As these projects come online and become profitable our financial results will improve.

Additionally, we have 3800 vacant sites within our existing portfolio and 2000 vacant acres that can be developed into approximately 7800, homesites that will allow us to drive organic earnings growth as demand dictates, we have external growth opportunities through the acquisition of existing communities.

The investment in our opportunity Zone fund and the investment in our joint venture with Nuveen.

As always UMH remains a conservative steward of capital, we look forward to generating additional value and income for our shareholders.

We are well positioned for a strong fourth quarter and an even better 2023 and.

And now Anna will provide you with greater detail on our results for the quarter.

Thank you Sam normalized <unk>, which excludes nonrecurring items was $11 $7 million or 21 cents per diluted share for the third quarter of 2022 compared to $11 $1 million or 23 cents per diluted share for 2021 and <unk>.

$8 $7 million or 16 cents per diluted share sequentially for the second quarter of 2022.

We had previously announced on July 26, 2022, we redeemed all nine 9 million shares of our 675% series C. Perpetual preferred stock for a total of $247 million.

This redemption was completed by utilizing funds raised through our common ATM.

Ali bonds offering and mortgage debt.

As Sam mentioned, we only received a partial benefits from the recapitalization SME Ademption was completed at the end of July .

Adding back the preferred dividend for 26 days of July results in an additional increase in F. F. L of approximately <unk> <unk> per share.

We are very proud to have been able to complete the recapitalization of our series C preferred and a difficult economic environment, we opportunistically raised capital throughout the year to ensure that we had the capital available at rates and prices, we were comfortable with to drive future earnings growth.

Throughout the remainder of this year and into next year, we will see the full impact of this recapitalization.

Rental and related income for the quarter was $42 $9 million compared to $40 $2 million a year ago, representing an increase of 7%.

This increase was primarily due to community acquisitions. The addition of rental homes and the growth in occupancy.

Community NOI increased by 1% for the quarter from $23 4 million in 2021 to $23 $7 million in 2022.

Sales of manufactured homes for the quarter increased 16% from $7 $8 million in 2000 $21 million to $9 million this year sales.

Sales also increased 29% sequentially from the second quarter of 2022.

Our average sales price for the quarter was $102000 with new home sales, averaging $125000 and used home sales averaging $62000.

The gross profit percentage was 30% this year compared to 25% a year ago.

Sales profitability with $919000 in net profit this quarter compared to $611000 a year ago, resulting in a 50% increase.

As we turn to our capital structure at quarter end, we had approximately $726 million in debt of which $500 million was community level mortgage debt and $127 million with loans payable and $99 million with our newly issued $4.

Seven 2% series a bonds.

83% of our total debt of $6 <unk>.

The weighted average interest rate on our mortgage debt was 387% at quarter end compared to 379% at quarter end last year.

Weighted average maturity on our mortgage debt was five one years at quarter end and five three years last year.

At quarter end UMH had a total of $215 million in perpetual preferred equity alpha.

Our preferred stock combined with an equity market capitalization of $890 million and our $726 million in debt results in a total market capitalization of approximately $1 $8 billion at quarter end.

We had a relatively quiet quarter in the capital markets. During the quarter. We sold 237000 shares of common stock at a weighted average price of $19 60 per share generating gross proceeds of $4 $6 million and net proceeds of $4 $5 million.

Subsequent to quarter end, we sold 558000 shares of common stock at a weighted average price of $16.26 per share generating gross proceeds of $9 $1 million and net proceeds of $8 $9 million.

In conjunction with the series C preferred stock redemption.

Drew down $50 million on our credit facility, we have an additional $50 million potentially available pursuant to an accordion feature as well as $46 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.

Line of credit secured by rental homes and rental home leases.

I am pleased to announce that on November seven 2022, we entered into the second amended and restated credit agreement with BMO capital markets and J P. Morgan Chase Bank. This amended and restated credit agreement increases our credit facility to $100 million with a 400.

Million dollars accordion feature subject to certain conditions, including obtaining commitments from additional lenders.

This agreement also extends the maturity date to November seven 2026, which may further be extended at our option for an additional year. This new agreement enhances our liquidity and financial flexibility, allowing us to continue to execute our business plan.

From a credit standpoint, our net debt to total market capitalization was 36, 2% our net debt less securities to total market capitalization was 34, 1%.

Our net debt to adjusted EBITDA was seven three times, our net debt less securities to adjusted EBITDA was six nine times. Our interest coverage was three four times and our fixed charge coverage was one seven times.

Additionally, we had $39 million in our REIT securities portfolio unencumbered.

This portfolio represents approximately two 4% of our unappreciated assets, we limit our portfolio to no more than 15% of our unappreciated assets. We are committed to not increasing our investments in this REIT securities portfolio.

With our strong financial position Welling earnings 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 continues to execute on our long term business plan, which has delivered exceptional results over the past few years.

We are pleased that we were able to recapitalize, our 675% series C preferred which should increase <unk> by approximately <unk> 12 per share annually.

We are dealing with the operational challenges present in this uncertain economic environment.

But UMH remains well positioned to execute on our growth initiatives, which should result in growing earnings for our shareholders.

For the past two years, we have invested approximately $80 million and value add acquisitions development deals or expansions, which do not have an immediate impact on the earnings but the capital has now been deployed.

We are making progress at these locations and expect positive contributions in 'twenty, two 'twenty three and beyond.

Our improved operating results and earnings will allow us to access capital at lower prices further compounding the success of our proven business plan.

Well I think interest rates at historically elevated home prices continued to drive strong demand for manufactured homes in our communities.

Our nation continues to experience a shortage of affordable housing and that shortage is only going to intensify as new housing units do not address the affordable end up to the housing market.

The deceleration of residential home sales is likely to reduce single family home starts.

100000 units or more.

The manufactured housing industry can help bridge the housing shortfall by developing 500 communities containing 200 sites annually over 100000 new units.

UMH has spent decades, providing affordable housing by acquiring communities with needed capital improvements and deferred maintenance and transforming them into first class communities that our residents are proud to call home.

This business plan has allowed us to provide over 25000 affordable housing sites for the nation.

We will continue to opportunistically acquire communities that allow us to provide more affordable housing in our markets and deliver strong returns for our shareholders.

Additionally, we continue to expand our communities and expect to deliver 400 normally developed expansion sites annually.

Furthermore, we have a development pipeline of over 1000 sites UMH is uniquely positioned to lead the nation in the construction management and ownership of high quality affordable housing communities.

UMH has a social mission to provide the nation with high quality affordable housing. We have also invested in environmental initiatives to conserve water and reduce energy consumption.

We're exploring additional environmentally friendly opportunities in solar and natural gas generation, which would benefit our residents our communities and our shareholders.

UMH has received a second party opinion from sustained analytics regarding the merits of our social and environmental impacts as well as confirmation from MSCI that our revenue is 100% social.

We have built a company that provides social and environmental benefits for our nation and we will continue to grow these initiatives in the future.

Thank you we will now begin the question and answer session.

To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Today's first question comes from Keegan, Carl with Wolfe Research. Please go ahead.

Hey, guys. Thanks for the time, maybe first on home sales, obviously, they're really strong in the quarter I'm. Just curious how much of this is driven by Q2 demand that was pushed into Q3 due to a delay in getting homes in time.

Yes. So some of that certainly was the delay of homes that had sales pending that were arrived and fully set up what I would say going forward and through Q3 years and enter Q4, we continue to have a strong pipeline of people that are approved for financing waiting on completion.

Of their homes. So we don't think that the numbers are inflated because demand isn't there. We believe demand is there we believe its growing and we believe that will continue to see sales growth this quarter and into next year.

I should add that we have a lot of homes, arriving in our communities that are being set up so we should not only see sales grow, but we should see our rental occupancy grow as well in the future.

Thanks for that Brad maybe Howard Q4 sales trending versus last year quarter to date so far.

Quarter. Four this is Sam it's really too early to know, but you know the way we picture things as this.

Our our staff the more experience they get selling homes to better. They do you know when we.

<unk> the number of communities its new people to train UFC bring that selling homes at top prices. So.

There's a lot of reason to believe.

Sales will continue to increase you could make the argument that with home sales nationally down the 55 and older crowd.

Might have more difficulty selling their house, which could slow down our sales of 55 and older homes, but on the other hand.

As you know replacement cost rises in the cost to build all homes rises and the <unk>.

Interest expense increases so it brings more houses.

Out of the range of affordability for a large number of people yet people need some place to live and our demand as of this moment has not slowed down so I tend to believe that.

Even with a national decline in home sales.

Manufactured homes affordable housing and affordable communities.

Could stay very strong in historically in the 19 seventies and the highest period of inflation and interest rates.

Manufactured housing shipments and sales did very well so it's a little early to know.

The fourth quarter would bring but we have built expansions are obtained homes from the manufacturers trained our people have the best finance rates in the industry.

Do great marketing.

And just believe that our sales will continue to grow.

Maybe switching gears here, so G&A ticked up a bit in Q3 over Q2, just curious were there any onetime items in this and then what would be a good run rate going forward or is it more Q2 or Q3.

There was some onetime items in there, including some professional fees. So I believe that it will be more towards the Q2, the one time items.

Have in there.

I believe it is in the.

Primarily professional fees is that $900000.

Got it very helpful. Maybe just one more just on the transaction market. Obviously you guys are still closing deals just good to see but I'm, just curious where you're seeing cap rates trending.

Yeah, we really haven't seen too much of a move in cap rates, yet I think we're all expecting that but I think that theres a lot of sellers that have gotten used to their property values being one thing and it's hard to.

It will go in in a short period of time and explain to them why it's where something else now. So we're still remaining active on the value add acquisition market that business plan really isn't cap rate defense dependent its more cost per site dependent what can we achieve in rents.

And what do we have to put into these properties too.

Phil rental units and sell homes at a profit. So those deals are really what we've closed this year. That's what's in our pipeline right now and that's what we're continuing to look for when and if an opportunity.

<unk> presents itself at a reasonable price and the stabilized market, we will be ready to transact, but that volume has really slowed down I think industry wide and we are waiting to see what happens here over the next few quarters and Sam here I just wanted to add with 8% inflation, it's pretty clear replacement cost and the cost to build new.

<unk> is up 8% and.

Eventually.

You know that will.

The demand for existing properties existing manufactured home spaces, and what people will pay for those spaces will increase based on the value of the site and so in the short term you may have people, who don't have access to capital.

Two weeks.

For the rent increases and the occupancy increases so that they can profit from their acquisitions and so that might create opportunity for us, but we still envision the value of properties and communities continues to rise because we go up in value at least.

With inflation.

Great. Thanks for the time guys see you at NAREIT.

The next question comes from Rob Stevenson with Janney. Please go ahead.

Hey, Good morning, guys same store expense growth was up nine six in the quarter and 8% year to date given your expense commentary.

Does it start to normalize as you get into 'twenty three.

Are you back to sort of the 445% level that you had been running are you expecting elevated same store expense growth for the foreseeable future.

Yeah, no what I would say there is nine 6% was certainly elevated and elevated over the first and second quarters of this year as well.

Payroll was up about 9% this year, which was our largest increase in the overall expenses a lot of that was just related to resetting specifically maintenance pay to market to make sure that we're able to attract and retain our qualified and talented staff.

Really the key to making sure that we're able to execute on this business plan. So while that's an investment or an expense. It really is an investment in making sure that we're able to operate effectively moving forward.

You see a lot of expense increases related to fuel our Boeing for instance is up substantially travel expenses are up substantially.

We had a few wind storms in Ohio, and Indiana that contributed to a tree removal being up 160000, which that's not recurring obviously more storms can pop up but that is a big increase for any given quarter. We saw some increases in real estate taxes I believe that was about 7% and I should also mention that we actually hosted our cup.

<unk> meeting this year, which there's travel expenses related with that but that is for training our community managers to make sure that they're able to implement our business plan that we did not host the meeting last year so that.

As a new item that wasn't actually in the third quarter of last year. So the same here I just want to mention.

We've increased what we project our rent increases will be you know, we've tried to stick to 4%, but obviously with 9.6% expense increases we.

Have to make a change we were going to go to 5% rent increases for next year as opposed to.

4% still obviously doesn't equal out, but we make up for that.

By adding the 900 rental homes that will.

Growth in excess of $10000 per unit each for the year. So.

We're aiming to reduce our expense ratio again by this time next year. So you had a you know.

100 basis point increase in the expense ratio, we believe that next year, because we are now able to obtain rental homes homes to sell and we will raise the rents 5% instead of 4%.

That will be able to reduce that expense ratio again.

Okay.

Where are you guys running in terms of cash buyers versus financing on new home sales.

Yes so.

For the year, we're at 62% finance home sales and 38% cash buyers I guess just to add to that about 70% of our total sales our new home sales, which we always like to see.

Okay, and what type of interest rate can I get from you or others in the marketplace today on a new home given the 30 year mortgage rates are now north of seven in a quarter.

Yes. So we are trying to keep our rates in line with conventional mortgage rates right now we're actually a tick below that at about 7% on new home sales, which is why I mentioned that.

On used homes or a resident sales where you are at eight 5%.

As the conventional market moves we take a look at our cost of capital on our interest rates and try and be in line with that.

We have as I mentioned earlier, the best quality and lowest rate financing in the industry I would say our closest competitors are in the 8% to 9% range, depending on the quality of the credit.

Okay, and what are you guys currently paying for new rental homes and how much are you starting to see the rate of increase on that pricing decelerate a little bit as.

As the supply starts to come back up a little bit.

Yes, absolutely.

We haven't really seen a major deceleration yet, but we've at least seen a flatlining during the second quarter. We saw some price decreases three or 4% a month, so that certainly helped.

September and October were virtually flat from the previous month, and we did see a minor decrease here in November so.

We're hoping that prices continue to come down we think that they will.

Not sure how far they're going to be able to go with still some supply chain issues and labor costs remaining high.

That said, we're trying to work with our manufacturers to put together floor plans. They can build efficiently with the quality upgrades that we need in our homes and potentially receive some savings there. So all in a single wide rental.

We're somewhere in the 70 to 75000 range with.

With doubles being in the 90 to 100000 range.

Okay, and then last one for me when you were talking about the 100 to 102000 per home sold this quarter that compares to only 82000 last quarter I know that you said that the new home sales were like 125 versus <unk> 62 for existing is that difference does that 20000 dollar gap.

Quarter over quarter, just a mix issue would you sell a lot more new homes and a lot less skus homes this quarter or is there something else going on in that number sequentially.

Well because prices have gone up our of course, our sales price has also gone up what has happened is we have a 30% gross profit percentage this year versus the 25% gross profit last year. So that also took into took that into account this year.

We sold 89.

Total homes versus the 101 last year of which 56 were new homes. This year versus 49 of new homes last year. So yes part of it is the new home and part of it is our increase in our gross profit percentage.

Okay, because the 25% sequential jump in pricing was kind of start there and just wanted to figure out going forward, whether or not you guys are going to be more in the sort of $80000 home sales per unit versus 100000, because that makes a difference in the numbers. So just trying to figure that one out.

Sam here and I think the likelihood with with C brain with Duck River.

New Jersey sales.

Other locations cinema Woods, Youre going to see a lot more $200000 home sales than we ever had in the past. So we're gonna grow our number of $200000 home sales as a percentage of sales and they're going to grow in and of themselves. So and they are priced at the 30%.

Profit level with $200000 gross sales prices.

See a lot more of those in the future I believe.

Okay. That's helpful. Thank you guys.

The next question comes from Craig Sarah with B Riley. Please go ahead.

Hi.

Yeah, Hey, good morning, guys and congrats on closing the first.

Opportunity Zone acquisition are the remaining acquisitions you have in your pipeline also going into the fund.

No so.

It's a complicated question, but ill get into the pipeline a little bit. So the two properties. We have that are existing acquisitions in the pipeline now one is in new Jersey, that's a $23 million deal 258 sites and one is in Ohio 321 sites in $19 million. So that 579 sites will be acquired for 42 million.

Are you on H deals, they're not in opportunity zones just.

Just to touch on them, a little bit there both value add but they're different value add than some of the previous deals. We've done this year in new Jersey properties actually 95% occupied and it does have rent control, but it has vacancy decontrol, it's a community of mostly older homes that as they turnover will be able to increase the rents from the existing number of about 400.

<unk> 50 on average to what we believe is market and we experienced at our property down the road of rents close to 800, so theres major upside there.

We'll also be able to earn the sales profit as we turn those units over as well.

The property in Ohio is 78% occupied that will benefit from a rental program. The current owner does not have one but it's a very high quality community with limited capital improvements required unlimited deferred maintenance, so we'll be able to hit the ground running there.

With our rental program in quickly and fill that property similar to the example that we use in our investor presentation of park place.

The development pipeline is about $100 million.

Those properties except for one.

Will not be going into the opportunity zone, they'll be going into our typical joint venture with nuveen. The one opportunity zone property as LIBOR in Albany, Georgia, Daniel you want to touch on that at all yes.

Yes in an opportunity zone in Albany, Georgia.

<unk> that will be a new development.

It will likely be in the fund the fund is still open for fund raising so we're just.

Seeing exactly how much capital, we'll have in that fund, but either way that you know.

That new development in Albany, Georgia is interesting, we think it will likely be in those the fund because it would be ashamed to not get those benefits.

But.

Not closed yet so we will see.

Got it and just circling back on the.

The acquisition you have in New Jersey, you mentioned, you kind of went through a similar process or maybe I'm misunderstanding you, but how long I guess based on what you went before went through before New Jersey, If I'm understanding you did it take for rents to sort of gradually go from rent decontrol at what you said $4 50 up to that maybe the 800 dollar level.

Was that a I would imagine that's a multiyear event, but kind of what are your expectations there.

Yes, it's a very long term event, but.

You know, we're going to purchase homes from residents.

And and as we purchase homes from residents.

We'll bring brand new homes and to sell and the rents will go up to market. So it's.

Almost impossible for us to guess, how many residents will be able to.

Willing to sell their home at any given time, but but.

In Southwind village, which is the other new Jersey community with 250 lots over.

If you go through that community today.

You know this is just approximate numbers, but it's 10% to 20% 1970 homes and almost anything other than that is from the 19 nineties and on so you know over over a many year period, we remove virtually all of the old homes replace them with new raise the rent to market and earn sales profits.

The time period, it may take a decade, but it will happen.

If I could add.

We're in a wonderful industry.

Manufacturers every year have a better product.

And he is coming out with even better products that some have four bedroom. The quality is there and when you have an older polak with older homes not energy efficient.

This is <unk>.

Great advantage for our tenants upgrade.

And you start the upgrading as you go through the park and someday you've got all the old homes out in the new homes in and you've got a community has increased value because it is a better community. We can take it a long range view of everything.

We're trying to create affordable housing that's quality housing.

Got it and and Anna I'm, just thinking about sources of capital and how Youre thinking about leverage right now I mean, there's a lot of growth between the UMH acquisitions, then you're being joint venture.

Capital commitment I think that's 40% <unk>.

Got your rental homes, you're putting in I guess, how are you thinking about leverage are you looking at funding on a leverage neutral basis.

I know you've been you've been tapping our ATM.

Cost of equity has gone up a bit I guess, how are you. How are you thinking about capital here in the near term and medium term.

Sure I mean, we do have.

Over $60 million in cash right now on our balance sheet. We have as you know we have our BMO our line of credit.

Which we just renewed and expanded so that 100 million plus an additional $400 million on an accordion feature.

So we are working on that we have out rental home line, we have our notes receivable line and we're looking to expand those lines. We also have a securities portfolio of $39 million.

Which is right now free and clear we can borrow against it or if needed we can sell it we're not committed to keeping the portfolio. We it depends on our capital needs as he said before we also have our ATM, that's open and as long as.

The.

As long as what we buy what we invest in it.

It's accretive to Alice.

<unk> price on our shares we would be able to use the ATM. So we have various sources of capital and we think that we have enough to cover our capital.

For the near term.

We have a.

Plan.

Yeah.

Taking longer than we thought, but we think our cost of capital should be reduced greatly due to the fact that we're 100% pure social.

And our nation with social investing is now.

Considered the.

Standard and we wanted to get more investors, who appreciate the fact that we're doing a great service.

Providing affordable housing and the investments that come into our company.

<unk>.

National problem. In addition, with taking a look at.

The other plans that the government has to courage affordable housing and that includes the opportunity zones and the ability to get capital with a great tax advantage that no capital gains, let's say, a 10 year period, so that investors.

Who are interested in that in tax.

Tax conscious we feel again raise capital.

They reduce the cost.

The fibrosis matters.

<unk> time with spending a lot of effort on it.

But the magnitude of what can be accomplished is very very substantial and of course with them now in a period, where the country's setting a record for not ways of capital, but I see a real estate trust raised the lowest Nevada capital on record last month, but we're still these these plans that we have.

To have a stock with labeled social and attract capital at less cost.

Opportunity Zone program.

May cause UMH to stand out.

Alright, I appreciate the color thanks, guys.

Yes.

Again, if you have a question. Please press Star then one.

Our next question comes from Jay Mccanless with Wedbush. Please go ahead.

Hey, good morning, Thanks for taking my questions.

So it sounds like you are getting better visibility from the manufacturers about houses availability, maybe talk about what youre hearing from them and is there potential upside for the guidance you gave around home sales for next year.

Well again you know.

The overall market of home sales will affect everybody, but I tend to believe because we've built expansions in the right places with high priced homes, because the bottlenecks of getting the houses is virtually gone on and by next year I'm sure it will be gone.

And youre not seeing those price increases.

The percentage increases you saw in the past and add to that.

The difficulty.

For a person who needs a home to finance the more expensive houses there is a lot of reason to believe.

Sales of homes can increase and we've positioned ourselves for.

If these things are macro trends that slowdown home sales well eventually those things will change because the world needs housing and we have the vacant lots we have the homes in inventory we have a staff to sell homes were properly priced. So we are we are ready.

For you now.

Growing sales and growing profitability.

When the market allows that to happen, which it may in fact allow because historically in the 19 seventies, even as other home sales stopped manufactured home sales continued.

Just in our discussions with the manufacturers. So about this time last year, we were experiencing eight to 12 month backlogs are.

That's come down substantially in most cases, we can get homes in two to three months with some exceptional cases, a little bit longer than that.

Some of the retail dealers that they work with have been canceling orders as you know.

Interest rates have increased and changed the affordability metrics, where their buyers so that allowed us to move up in line and obtained.

Quickly, we actually have 900 homes delivered to our communities today. They are there, but they are being set up and they are the runway for future growth going into the fourth quarter and the first quarter, assuming all goes as planned and we're able to occupy those in short order that positions us well to make an additional 900 home orders for next year.

That's great.

Yeah.

I know earlier this year some changes in the Fannie may rent regulations about live.

Lending against communities was potentially going to open up an opportunity to do some refinancing and increase liquidity I guess can you talk about where that is now and as the move up in interest rates made it where it's just not.

Financially viable to start doing some of those refinancings.

Well this year, we did do some refinancings, we had we did a $25 million loan on.

<unk> Lee I forgot how many homes a thousand homes, which was our homes that were in the communities that we financed into India in 2020, and that was 25 million at an interest rate of 4% to 5%. We also did another Fannie Lou.

One <unk>.

$34 million it was four communities and 250 homes.

It was that a little higher 524% and that was because it was just a couple of months ago. When the rates did increase so the rates did increase we are looking at maturities, we have about $6 million of maturities. This year $59 million next year, we are beginning.

And we are in the process of refinancing those.

Yes, the I believe the interest rates will be higher but I also think that the.

<unk> that we received the proceeds that we receive will also be higher I think we will receive out of that $65 million will probably.

Two loans.

$65 million and be able to say 100 million, maybe a little less out for other projects, including acquisitions and purchase of rental homes.

Okay. That's great. Thank you and then maybe just talk about the preferred DS and what type of options you have with those coming up.

Well on the preferred D. We have $215 million outstanding we can redeem it in January of 2023. It is at six point.

<unk> tends to be 8%.

Originally we thought that we would be redeeming it in January but as the rates went up we.

We felt that.

The capital the six and three eights capital is good money for US we don't force because it is a perpetual preferred we can redeem it at any time. After January so in January we don't believe that we will be redeeming it because of the interest rates and because of this.

Of the.

Savings, we wouldn't have as much savings as we would anticipate so we will leave that open in the meantime, and redeem it when it is best for our shareholders and when we can get a largest savings.

Do are you allowed to do partial redemptions on that or is it has to be an all or none type transaction. We are allowed to do partial redemptions, but 63 eight right now seems a good rate as you can see we're lending at 7% we have even mortgage rates are at 7% and I don't think we would be.

Able to obtain enough of the savings too.

Redeem the preferred at that time.

It's a minor correction on the lending rates are running at seven and a half or a little bit about Oh I'm sorry.

You're right.

I always thought of as just that.

Okay.

Sorry about that.

But I didn't realize that.

No no problem.

That's all I had thanks again for the time.

Yes.

The next question comes from Michael Zuk Private Investor. Please go ahead.

Good morning.

Strategic question for you all have you ever considered selling any communities and redeploying the.

Proceeds from it.

That I would make any sense.

Sam Landy here.

First I'm glad to say that we have not.

You know refinance to grow.

UMH was one of the first companies.

To notice, what Marcellus and Utica shale would do and so we very actively acquired communities in that area and all of those communities have grown in value add.

As the economics of those areas resulted in higher incomes higher populations UMH is now working on all of our properties with the idea.

Look at the new solar energy programs today, and the programs to convert natural gas or propane into electric so real estate and you know you talked about selling properties.

Real estate goes up in value based on what's happening in the location, but also what's happening as technology develops and I believe that all of our communities may have an incredible breakthrough.

<unk> able to generate solar energy for our residents, which you can sell solar tax credits.

Could reduce people's energy cost.

You can sell energy back to the grid and on top of the solar energy if you're at a community with natural gas. They have these very small.

Generators that will convert natural gas to electricity or propane to electricity and all of these things may make real estate of all types more valuable in the future than it is today because each piece of real estate becomes an energy generating facility that you could be.

Powering your car from your facility, while it's plug you go home at night go to bed in your solar roof charges. Your car so not selling real estate has served us very well over our 53 year history and I believe that.

These technological and futuristic breakthroughs are going to surprise people pertaining to the value of real estate I also wanted to add that.

Don't forget we can finance and refinance our communities and as we increase the value of our communities financing. It we are able to realize that value and take the money out and invested in other community. So that's what we've been doing over the last 50 years.

Fair enough.

I just had a strategic question as a follow up.

Or are your plans with regard to providing a hook.

Look ups for electric vehicles.

Well, we're only exploring everything at this moment, but we but there are many companies that are incredible experts in all areas and we're spending more than a day a week.

A little about this and trying to find the best alternative.

We remember when you have a 200 home community you have to provide the electric for those houses.

But the what's needed is how do you provide the electricity for the electric cost as they become.

More news and if you had a 5100 electric cars in the community that you have to have the elected to put them on top of that.

Great concerns about these.

The ability of the grid.

To supply power at all times and it may be very important it has been in the past that we have the ability to.

The supply extra palace, so we may.

Habits as Sam pointed out we may put in there.

Generators, so gas power generators, which would really be useful in providing an electric for the electric vehicles, because so I'll have to get them on the road takes 45 minutes and nobody has that 45 minutes.

So I think I'm at home without community. They have 456 hours a day that the.

The home decor is sitting there so.

As Sam said, you'll be amazed how much time, we're devoting to this at very high levels, because we have 25000 sites so everybody talks to us.

We are looking into it.

Well, it's very reassuring that youre looking forward in that you're getting a handle on it before it becomes.

An issue that you have to retro great.

Thank you, yes, and I appreciate everything you've done and I've been a long term shareholder and continue to own. It my grandson, who is nine years old as one of your younger shareholders.

Sure.

Thank you operator I'd like to.

Please go ahead. This concludes our question and answer session I'd like to turn the call back over to Samuel Landy for any closing remarks.

Thank you operator, I'd like to thank the participants on this call for their continued support and interest in our company as old Gene Anna Brett Jim and I are available for any follow up questions. We are looking forward to reporting back to you in February with our fourth quarter and year end 2022 results. Thank you.

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