UMH Properties Inc. Q1 2023 Earnings Call
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Good morning, and welcome to the UMH properties first quarter 2023 earnings conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please.
Please note this event is being recorded.
It is now my pleasure to introduce your host Mr. Craig Coster Executive Vice President and General Counsel. Thank you. Mr. Koester, you may begin.
Thank you very much operator in addition to the 10-Q that we filed with the SEC yesterday, we have filed an unaudited first quarter supplemental information presentation. This supplemental information presentation, along with our 10-Q are available on the company's website.
<unk> Dot REIT, we would like to remind everyone that certain statements made during this conference call, which are not historical facts may be deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095. The forward looking statements that we make on this call are based on our current expectations and involve various risks and <unk>.
Uncertainties, although the company believes the expectations reflected in any forward looking statements are based on reasonable assumptions. The company can provide no assurance that its expectations will be achieved the risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's first quarter 2023.
<unk> earnings release and filings with the Securities and Exchange Commission the company disclaims any obligation to update its forward looking statements.
In addition, during today's call, we will be discussing non-GAAP financial metrics reconciliations of these non-GAAP financial metrics to the comparable GAAP financial metrics as well as the explanatory and cautionary language are included in our earnings release, our supplemental information and our historical SEC filings, having said that I.
I'd now like to introduce management with US today, Eugene Landy, founder and Chairman Samuel Landy, President and Chief Executive Officer, Anna Chew Executive Vice President and Chief Financial Officer, Brett Taft Executive Vice President and Chief Operating Officer, Jim Viking's, Vice President of capital markets, and Daniel Landy 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 Craig I would like to thank all of our loyal shareholders for their dedication to the company.
We are pleased to have raised our annual dividend to <unk> <unk> per share or two 5% in January over the past three years, we have increased the dividend by 14%.
We look forward to additional increases in the future as we achieve increased earnings per share through the implementation of our long term business plan.
Normalized <unk> was <unk> 20 for the quarter as compared to 19.
Last year, representing an increase of five 3%.
As we fill our vacant inventory improve our operating margin and grow our sales profitability. We believe we will earn well in excess of our dividend with a target payout ratio of 80%.
During the quarter same property occupancy increased by 100 basis points or 258 units to 87%.
Gross sales improved by 70% to $7 $3 million, which is a first quarter record.
Most of the increase in occupancy was generated in March therefore, the revenue growth from this occupancy gain should be reflected in our second quarter results.
Additionally, we are coming into our peak selling and renting season, which should result in further growth in occupancy in sales profitability.
One year ago, our results were impacted by a lack of inventory to sell and rent homes, which resulted in limited revenue growth for most of the last year.
The COVID-19 related supply chain issues that had existed combined with strong consumer demand for homes resulted in manufacture backlogs of 8% to 18 months, depending on the factory and.
Our efforts to solve that problem, we ordered over 1000 homes.
We're on track to fill approximately 100 homes per month over the next six months carrying 1000 homes is 500 homes above our normal inventory. It means we have taken out a higher debt load increased interest expense and increased carrying costs.
Each month as we reduced inventory, we should see increased income and reduced floorplan interest expense and carrying costs.
The norm of manufactured housing is that we can order homes at the right price and have them ready for occupancy in four to six months from the order date.
Our return to this norm should allow us to carry less inventory, thereby reducing expenses and further improving earnings.
During the first quarter, which is typically one of our slowest quarters, we converted 230 of our inventory homes to rental homes and sold 39 new homes.
The increase in occupancy in conjunction with rent increases implemented in the first quarter generated an increase in monthly rental charges of approximately $550000 as of April one 2023 compared to January one 2023.
Demand remained strong throughout the portfolio and we should be able to drive similar occupancy and revenue gains over the next few quarters.
Our same property results are in line with our expectations and continue to trend in the right direction. During the quarter same property occupancy increased by 258 units or 100 basis points.
Our same property rental home occupancy rate increased from 93, 5% at year end to 93, 9% at the end of the first quarter.
Our same property monthly rent per site increased four 5% and our same property monthly rent per home increased six 3% year over year.
These improved operating metrics resulted in same property income growth of six 1% with expense growth of six 8%, resulting in same property NOI growth of five 6% or $1 $4 million over the first quarter of last year, our expense ratio decreased.
<unk> from 42, 6% in the fourth quarter to 42, 1% in the first quarter of 2023.
The occupancy of our inventory should result in accelerated revenue growth. This year that revenue growth assuming similar expense growth experienced in the first quarter should result in high single digit NOI growth this year.
Gross sales for the quarter increased 70% to $7 3 million as compared to $4 $3 million last year.
Both sales margin improved to 32% from 30% last year net income from sales was $236000 as compared to $103000 last year.
As we return to normal inventory levels, the profitability of our sales division should increase further <unk>.
Included in net income or higher interest expenses and elevated inventory carrying costs during.
During the quarter, we sold 83 total homes of which 39 were new homes, our average new home sales price was $136000 and our average used home sales price was $45000.
We're financing approximately 76% of our home sales, we have a total of $68 million in home loans on our balance sheet that earns us an average interest rate of six 7%.
On the acquisition front, we acquired one newly developed community in Georgia containing 118 sites for a total purchase price of $3 $7 million.
This community was acquired through our opportunity Zone fund, we anticipate strong demand for rental housing in this market.
We continue to seek opportunistic accretive acquisitions that meet our growth criteria, but there are limited opportunities that fit our criteria.
Last year, we acquired seven communities containing 1500 sites and an additional community containing 144 sites through our JV with Nuveen real estate we.
We are making progress implementing our business plan at our recent acquisitions and anticipate an improvement in operating results at those locations. This year.
We also continued to make progress filling our joint venture communities with Nuveen and hope to grow that venture in the future.
On the expansion front, we are under construction of four communities to develop 216 lots. These expansions are located in Maryland, Pennsylvania, Tennessee and Indiana.
All in all we are very satisfied with our quarterly results, but we want our shareholders to understand our success is based on our willingness to invest in and work on projects that typically take three to five years to be accretive our industry and the entire business world are extremely competitive and looking for investments that.
Will be immediately accretive therefore, there is a scarcity of such investment opportunities on the other hand, when you invest time and money and projects with a three to five year time Horizon, you have limited competition and a much higher chance of success.
UMH has utilized this long term business model to grow into one of the largest community owners in the country.
We own 135 communities containing 25700 homesites that are approximately 85% occupied we also own two communities containing 363 sites in Florida through our joint venture with Nuveen real estate. Additionally.
Additionally, we own 9300 rental homes and will own over 10000 rental homes as we fill our inventory.
We have 2100 acres of vacant land that can be developed into 8400 sites. This vacant land and our existing 4000 vacant sites provide us with a long runway to grow earnings organically for the foreseeable future, we have the proven ability to acquire and <unk>.
Improved communities develop new communities and expansions operate self storage facilities are joining our communities profitably sell and finance homes and lease oil and gas rates in our energy rich locations. We are also exploring the possibility of solar energy to further increase affordability for our brands.
It is having a positive environmental impact UMH is well positioned to grow income and per share earnings through the successful implementation of our proven business plan.
And now Anna will provide you with greater detail on our results for the quarter and for the year.
Thank you Sam funds from operations or <unk> was $10 $6 million or <unk> 18 per diluted share for the first quarter of 2023 compared to $8 5 million or <unk> 16 per diluted share for the prior year period, resulting in a 13% per share.
Increase.
Normalized <unk>, which excludes amortization and nonrecurring items was $11 $7 million or <unk> 20 per diluted share for the first quarter of 2023 compared to $10 $4 million or <unk> 19 per diluted share for 2022, resulting in a 5% per share.
Kris.
We're able to obtain these increases in SSO and normalized <unk>. Despite our operating results being largely impacted by our investments to grow the company through value add acquisitions and developments inflation and rising interest rates on our short term borrowings.
Rental and related income for the quarter was $45 3 million.
Compared to $41 $6 million, a year ago, representing an increase of 9%.
This increase was primarily due to recent community acquisitions. The addition of rental homes and an increase in rental rates.
<unk> operating expenses increased 11% during the quarter. This increase was mainly due to our recent acquisitions as well as an increase in payroll real estate taxes and insurance.
Community NOI increased by 7% for the quarter from $23 5 million in 2022 to $25 2 million in 2023.
Our same property results are trending in the right direction. It is important to note that while total community operating expenses were up 11% same property operating expenses were up six 8%, which moderated from 10, 2% last year and 14, 5% in the fourth quarter.
Sales of manufactured homes for the quarter increased 70% year over year from $4 3 million in 2022 to $7 3 million in 2023.
We sold a total of 83 homes in the first quarter of 2023 as compared to 61 homes in the first quarter of 2022.
39, new home sales compared to 27% last year.
Company's average new home sales price was approximately $136000 during the first quarter of 2023 as compared to $95000 in 2022, resulting in a 43% increase.
The gross profit percentage increased by 2% from 30% in 2022% to 32% for 2023.
As we turn to our capital structure at quarter end, we had approximately $751 million in debt.
Of which $461 million with community level mortgage debt of $191 million with loans payable and $99 million was out for 72% series a bonds.
75% of our total debt is fixed rate.
The weighted average interest rate on our mortgage debt was $3 nine 1% at quarter end compared to 378% at quarter end last year.
The weighted average interest rate on our short term borrowings is 739% as compared to $2 five 2% last year.
We are exploring opportunities to raise lower cost capital to pay down our short term borrowings, which would result in increased earnings per share.
The weighted average maturity on our mortgage debt was five three years at quarter end and five two years at quarter end last year.
At quarter end UMH had a total of $247 million.
In perpetual preferred equity.
Our preferred stock combined with an equity market capitalization of $887 million and our $751 million in debt results in a total market capitalization of approximately $1 9 billion at quarter end.
During the quarter, we issued and sold $2 1 million shares of common stock through our common ATM programs at a weighted average price of $16 83 per share generating gross proceeds of $34 8 million and net proceeds of $34 3 million after offering expenses.
Yes.
Subsequent to quarter end, we issued and sold approximately 688000 shares of common stock through our common ATM programs generating gross proceeds of $10 3 million.
Additionally, we issued and sold 874000 shares of our series D preferred stock through our preferred ATM program at a weighted average price of $22 52 per share generating gross proceeds of $19 7 million and net.
Proceeds after a offering expenses of $19 3 million.
Subsequent to quarter end, we issued and sold an additional 278000 shares of our series D preferred stock throughout preferred ATM program generating gross proceeds of $6 million.
On November seven 2022, we entered into the second amended and restated credit agreement with BMO capital markets and JP Morgan Chase Bank, which increased our credit facility to $100 million with a maturity date of November seven 2026.
On February 24th 2023, we increase this facility to $180 million.
As of quarter end, the amount outstanding under this facility with $100 million and.
And the interest rate was 659%.
This new agreement enhances our liquidity and financial flexibility, allowing us to continue to execute our business plan.
On March 9th we entered into a $30 million revolving line of credit with Triad financial services that are secured by rental homes and rental home leases. We view this as a good short term source of capital to invest in our rental program until we are able to secure long term capital at more advantageous rates were.
To have another line secured by our rental units.
From a credit standpoint, our net debt to total market capitalization was 38, 1% our net debt securities to total market capitalization was 36%.
Our net debt to adjusted EBITDA was seven seven times.
Our net debt less securities to adjusted EBITDA was seven two times our interest coverage was two four times and our fixed charge coverage was one seven times.
From a liquidity standpoint, we ended the quarter with $32 $9 million in cash and cash equivalents and $80 million available on our credit facility with an additional 400 million potentially available pursuant to an accordion feature.
We also had $86 $3 million available on our other lines of credit for the financing of home sales and the purchase of inventory and rental homes.
Additionally, we had $39 $3 million in our REIT securities portfolio unencumbered.
This portfolio represents approximately two 2% of our underappreciated assets.
We are committed to not increasing our investments in this REIT securities portfolio and have in fact sold certain positions.
During the quarter, we paid off two mortgages secured by 14 communities for a total of $45 million.
Given the high interest rates, we opted not to place mortgages on these communities until interest rates stabilize we currently have 50 free and clear communities, including the communities that are being utilized in the unencumbered asset pool for our unsecured line of credit with a value of approximately 500 million.
We have the ability to place long term debt on these communities. When we believe it is the best interest of the company.
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.
Our goal is access to long term patient capital so that UMH can provide much needed affordable housing.
And in investment in UMH is an investment in providing the nation with quality affordable housing.
UMH is income was weighted 100% social by MSCI. We also have a second party opinion.
<unk> daily analytics, another recognized ESG certifying authority set.
Certifying the positive social impacts of UMH and approving the framework for potential sustainable debt instrument or security in the future.
UMH believes in good faith, and fair dealings with everyone, including our residents we believe that limiting rent increases while our competitors aggressively raising rents will result in a strong tenant base and the durable income stream.
This policy should result in lower turnover higher occupancy rates and higher sales prices and most importantly satisfied residents.
Tom O choice economic markets have created a challenging operating environment.
<unk> remains well positioned because of the strong fundamentals of our business as well as the experienced Ghana, then spilled and our team over the past 55 years.
The strong fundamentals of representatives to our same property occupancy growth of 100 basis points and our sales growth of 70% during the quarter.
The new home inventory, we are carrying together with the capital invested for value add communities expansions and developments that are not acquisitive. Yet is currently negatively impacting our results, but it will allow us to grow earnings substantially throughout the remainder of the year.
Info pace is in line with our expectations and we anticipate further improvement as we move into our peak demand season.
We believe that UMH should be particularly attractive to ESG investors because of the positive societal benefits provided by our business plan as well as our ability to grow earnings over time long term patient capital allows UMH the focus on providing the highest quality living our industry can.
Provide short term earnings don't fully represented in that.
Fiction of the value created by the company.
Over time, this will become apparent to earnings and valuation growth.
We look forward to rewarding our shareholders through a growing dividend and stock price appreciation.
Policy is to pay distributions to shareholders and raise new capital for expansion and acquisitions.
Thank you we will now begin our 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 if at anytime. Your question has been addressed and he would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question will be from Keegan Karl from Wolfe Research. Please go ahead.
Hey, guys. Thanks for the time, maybe to kick things off your home sales rebounded nicely in the quarter. So just kind of curious how we should think about the cadence of the rest of the year and what you're viewing internally as a reasonable run rate.
Yes, so first of all I'd say that we're very pleased with the 70% increase in sales during the first quarter. We're pleased with the average new home sale price being 136000.
And our average home sale price being 87000, our properties are continuing to report very strong demand for sales, we have inventory setup or just about set up in the right locations and our pipeline of pending sales right. Now is about 3 million I'd also add to that that our April sales results did.
Outpace April of a year ago. So we're on track to.
Continue to grow sales throughout the year, our second and third quarter sales results are typically the strongest results. We have during the year. So I wouldn't anticipate a 70% improvement in sales during those quarters, but we do anticipate it to be up.
And we think we've got a very good chance of breaking the $27 million gross sales record that we set two years ago.
Super helpful. One for Sam So you know it.
In the press release, you mentioned about potential for high single digit same store NOI growth.
You know just kind of curious what would it take for that to actually happen because it's yet another quarter, where the same store expense growth outpaced revenue growth.
Well at this moment, we're facing two problems that are still COVID-19 related had.
Had we added those 400 rental units last year, we added 400, but had it been 800, so we're 400 short.
Our revenue would be up 400000 per month for three months, which would have greatly helped.
At <unk> and then the second thing is the interest expense and due to COVID-19 when we when the manufacturers couldn't provide homes.
We had to order a substantial amount of homes beyond what we would normally carry so we could get to the front of the line and get these homes and so that interest expense again is negatively impacting us probably as you know a million five or something like that for the quarter. So.
Theres about two and a half million dollars that we would have made this quarter, but for COVID-19 and as we go through the future.
Demand is incredibly strong everywhere I just heard about in Marion, Ohio.
We're renting homes today for $999 per month at a location, where we never imagined rents would be so high we started out at about $800 per month and now as those homes turnover of new homes that are rented it's $9 99 per month same with sales, we're hearing higher sales prices than we ever heard before.
Sure.
And we expect to go back to the.
The true benefit of manufactured housing is just in time inventory that we can carry minimal inventory at the communities.
Order homes get them in four to six weeks fully set up in eight weeks and sell them a rent them and that will dramatically decrease.
The interest expense and on top of that when Youre carrying homes you have to heat them you have to maintain them. So it creates a lot of additional cost carrying excess inventory and that again was the necessity of COVID-19 and again the nature of manufactured housing and part of the greatness of the industry is how quickly we can.
Provide houses without carrying high inventory. So we expect those expenses to decrease Additionally.
We have thoughts on how to reduce our insurance costs in the future through captives and.
And.
We have other means we see.
That we could reduce.
Homes cost us before we sell them, which will increase our sales profits. So we see a very very bright future coming up.
Yes.
Sorry, I was just going to add a little bit to what Sam saying so.
During the first quarter, we filled 230 units and that was compared to about 52, a year ago. So we are.
Really outpacing what we were able to accomplish all of last year, which does put us in a very good position for that revenue growth to outpace expense growth and ultimately end up driving that high single digit same property NOI.
As we mentioned in the script and in the press release at the beginning of April the occupancy gains and the rent increases implemented in the first quarter resulted in april's rent roll being $550000 above January rent roll.
Looking at our same property results income was up two and a half million, which was six 1%.
Another 800000 brings it to $3 3 million were very close to that that would be 8% income growth at the same expense growth, which would bring us in the year.
And a half to 9% NOI growth. So we think we're very well positioned to meet that in the coming quarters.
Got it just just on the topic of insurance I know Sam brought up I guess the two part question here. One what are you guys expecting renewal for the year, if you haven't gotten it yet.
<unk>, specifically with what's going on in the state of Florida, how does that impact your appetite for further development with your Nuveen JV.
Well insurance, we just got a renewal notice and I believe it was approximately a 7% increase so we're very happy with that number given that we've been hearing increases from some of our competitors of over 50%. So we're very happy with that regarding Florida again, we are happy.
With our communities in Florida, we're happy with what is going on we're happy with the infill in Florida, We do have one additional community to be developed in Florida, and we will continue.
Looking at additional acquisitions and.
Other in not just in Florida, but in other areas.
Okay, great spot on okay.
Yes.
Got it and then the last one for me just can you give us a bit more of an update on the opportunities zone funded what the pipeline looks like from here on out.
But the opportunity Zone fund that fund closed so the two communities that are currently owned.
That will be in the fund and.
Nothing in the near term.
For raising a new opportunity zone fund are requiring any more properties.
Right now the two properties that we have yes.
Yes, I have to add to the.
What we're doing is UMH is very unusual.
We are building housing and trying to solve the housing problem the problem.
The United States faces in housing is financing money it cost a great deal to build a thousand units costs us $250 million to build a thousand units.
And it takes 234 years to get the project completely filled when both of the prop of point, but we do know from experience. So we do know from our projections said if we do this over a period of he is we will make a great deal of money.
At the same time, providing.
Affordable housing and workforce housing.
Difficulty is is getting that capital and put it again to work and having satisfied the investors while you grow the company whether it's.
50, 75 million tied up in inventory of 50 to 75 billion tied up in land.
100 million tied up in land improvements all of these make good numbers look like you are growing slowly when actually you are really.
Having a superlative result, so we have come up with a solution and the solution is.
To attract capital that is long term oriented and we're doing it two ways.
We have got the securities.
Labeled social ESG, we've got leading.
Companies that Authenticates, whether you have any.
<unk> gives us letters that we qualify I used to claim we will have 100% affordable.
So we're only 97% a household has made all the affordability tests and therefore in theory, we should with 10 trillion dollars in the world seeking ESG funds, we should have funds coming to last forever.
<unk> spending in the last year, working very hard to telling our story meeting with other people, but we're very confident that we may get a preferred stock bonds web com on label this social and have a great source of.
That low cost capital, we will have a lower cost capital, but we will have capital we want long term patient capital. The second part of it is we've spent the time effort and money too.
Look at the upper two of these on investment.
The opportunities on the investment to encourage people to invest long term capital and build housing is that after 10 years.
There is no capital gains and the investors who.
Take a long term view of investment and look at the returns after capital gains are there. They are attracted to that type of investment, but we've found some difficulties with a law, particularly that.
It requires people to invest only money that they've made in another transaction capital gains and you put some of the capital gains taxes and for four years and then you had to pay your taxes. It was a little complex.
We looked at the situation, we came up with a rather simple solution and we said well. If this is what the government wants is this if this is what society wants us to build houses why that simply say that if you invest in an opportunity zone and build affordable housing then you will not pay capital gains.
For 10 years of gains and the way Congress keeps its books that if the if it's just a deferral of taxes.
N years away from now they will they score that is zero. So we have a potential of Loyola that we're proposing.
We're very hopeful that well we were first of all we've been talking about it to everybody everybody in the government ever by the manufacturer that are initially and we're getting terrific support and were getting very enthused about it because after a year of working.
Everyone, who hears this we don't find any one has come out against it. It's a bipartisan proposal proposed both blood Democrats and Republicans and we think if we get this amendment to their highest law.
I asked that we've built up an existing a subsidiary which has proven that they can go into upper zones and these are by approvals for.
<unk> existing owners or get the approvals themselves and we're again we're talking.
We did a study and we could have built an additional 3000 sites and as I said, it's a <unk>.
300, <unk> what it was at 300 billion for both the manufactured home community. Another 300 million to put the homes that are in there you said needed housing. So we're very optimistic that we've got the right route but we're not there yet.
Stay tuned because we think we're going to accomplish this.
Great. Thanks for the time guys.
And the next question is from Rob Stevenson from Janney. Please go ahead.
Good morning, guys with all the homes that you guys are going to be taking delivery on this year. How do you expect same store occupancy to trend throughout the year from the sort of 87% to try it now.
Brett will correct my numbers, but I believe we have approximately 4000 vacant sites in the company with.
A thousand of those sites occupied by non revenue producing home itself, we intend to make revenue producing and by the 600 homes that are you know the 5% vacancy of the existing rental units and the reason that's so important.
We believe we're going to fill more than 100 lots per month, so that we will fill those.
Units that are in inventory, but the next part of that is that just leaves US 2400 vacant lots, which is not many and and if you look at.
One of the pages in our supplement page 12 in fact, it shows you the percentage occupancy in each state.
And once you are over 80% occupancy. These communities are efficient so that the new revenue is coming in with something like only a 30% expense ratio and most states now have over 80% occupancy. So so these latest group.
Of houses.
It should be approximately 70%.
Profit, 70%, adding to income in <unk>.
And again, we're filling a 100 units per month.
And so then our next step is when we're down to just 2400 vacant lot. We have to continue to get our expansions approved and built and we have to continue to do these great acquisitions Dothan, Alabama and people don't go then tell us make sure we say, we love dosing and we love those in.
Those things are perfect their turnaround properties that nobody ever added rental homes to that needed upgrading from 30 years of deferred capital improvements and maintenance with great demographics.
And we were just there and theres more communities like this to do so.
Our are filling the 1000 units and increasing home sales is one challenge, but based on how business is today, that's not that hard to challenge. The harder challenge is how do we keep this inventory of vacant lots to continue to grow in the future and we work on that every day too.
Absolutely and.
So the 1000 homes are delivered and at the site. So they're basically ready for occupancy which is why we believe we will be able to fill 100 or more a month going forward, but there's always some home removal.
Inherent in value add acquisitions, so it won't be a 1000 unit increase in occupancy, but it could be 800, if we increase occupancy by 800 that brings same property occupancy to about 89% correct.
That's great and then.
What type of rental rate increases are you passing through to tenants on renewals today, given the market environment.
Existing residents, we only increase rents, 5%, but on turnover, we go to market and you know that Marion, Ohio, I talked about what Youre going to 999, that's probably a.
Substantial increase from they were rent it can certainly be 20% I know the average last year was about 7%.
I would anticipate it being in that range, maybe a touch higher.
And if you think about it I'm, sorry, I'm, just adding a little bit if you think about it.
Even though we are only increasing rents 5% even on the rental homes to existing tenants our average for the quarter with over 6%.
Okay. That's helpful.
Yeah. This is gene Landy chairman.
Some people don't understand why we don't increase whether it's 10% of our expenses go up 10%.
And we believe we're creating a market for our products. We want to have a product that has the best buy in the industry. We wanted to have tenants. They realize they are getting a good deal and the tenants.
They shop, they know what the apartment web cost and there may be four or 500 amongst more they know what our house costs. They know what the payments.
So we are keeping our pricing that we're the best buy in housing because we maintain our low land in every case, we sell the home we still have the land and then when the home and land we.
Have that big investment that over the years will make it a lot of money. So we will we want to be able to make money now and in the future, but we're very interested in building a.
Hello.
Company.
That well.
Continuing to build houses and at the same time give the residents the best buy they possibly can so well we recognize that we were a little squeezed with expenses going up some companies reported a 11, 12% increased <unk> 11, 12%, we've decided to keep the rents at 5%.
Because it improved our competitive position, which is basically against the apartments and the.
And also provided.
Our ability to attract tenants at a long term tenants.
Who are stay.
The cost of having them goes down so we don't think the.
You lose the four 5% you could have raised rents. It's a smaller number we don't know exactly what that number is but we are seeing on turnover. Our turnover is much slower than you would expect.
Given that the average apartment person stays a year year and a half in the app.
<unk>.
Oh, no EBITDA and onto a house in the United States only say seven years, so with those kind of average occupancies, we have much higher turnover and our turnover is a fraction of that and the tenants who stay of frankly, they're better tenants because they are cost conscious and they know they have a great deal with fuel MH.
Okay. That's helpful. And then can you talk about what youre seeing on a like for like basis in terms of.
Pricing on new homes to you guys.
It was sort of striking the difference between the 136.
Sales price this quarter versus the 95, a year ago I mean, how much more cost inflation is there on a year over year since.
Three or six months ago is there to you guys on your price for homes and what is that expected to be looking forward.
I would imagine more of our increase in prices is due to expansions coming online in us selling multi section homes and great markets in.
In terms of inflation from the manufacturers.
We were stuck between a rock and a hard place on getting homes during COVID-19 and the prices to US did go up but we do believe we have solutions to that number one the manufacturers are dropping their price increases, but number two we think by coming up with a limited number of home models that we want and going to the <unk>.
Manufacturers with very.
Specific.
I'd requirements and what houses, we want and putting those out forbid that we can again reduced the cost of the homes to us.
And home prices are down a little bit from three or six months ago, not substantially and we would like to see them to decrease further obviously, but.
Home prices have come down at least 10% potentially 15th so.
Oh, that's interesting. Thank you and then what are you providing financing for our new home sales today.
As the only financing game in town for new home sales in your communities or is there increasing numbers of third party.
Dancing available today for residents.
We always allow outside financing.
Other financing available, but our rates as they compare to others or rates are at about a seven 5% today on new home sales used home sales were $199 99. So.
Even though those sound like high rates are actually relatively in line with conventional mortgages, which is what we're trying to do is pass through some of the affordability to our tenants.
Our competitive finance companies in the industry for good credit, 10% down Youre probably looking.
8% in a quarter a little bit lower credit you can pretty easily get up in the 90% to 10% range and in some cases higher.
The size of sort of bad debt or delinquencies today in terms of the portfolio to getting better or is it staying flat.
Okay.
It's pretty much staying flat we are write offs I, usually approximately 1% of our total rental revenue and it's staying about the same quarter over quarter. It changes.
Sometimes there's a little under one sometimes a little over one but on average it's about 1% it's important to think about man.
Manufactured home communities and how receivable works. So you could have nonpayment of lot rent and there's generally a house sitting on that lot. So if the person turns out that they can't pay the rent and that's an eviction, it's either going to be a home that's completely obsolete and going to be junked, where we're going to put a brand new home on in earnest sales profit.
It's going to pay off that unpaid rent and then we're going to collect a higher rent. So that's what happens in the case of unpaid lot rent, resulting in our revision. So even if you had a write off youre, making money from that.
Bad situation and then you have rental homes that turnover that's more of a real.
Receivable in terms of a tenant gave us one month rent woman security if they can't paying you a victim you do have to write off that rent and there's not really an upside. But then you also have your receivable on your notes.
When people finance to home and they couldnt pay and due to the housing market today you know.
Most of the time Youre going to take back in the event you had somebody behind Youre going to take back that house and be able to sell it for more than you did the first time, so there's not going to be a loss there so the only real receivable.
Is on rental homes, and because we act as quick as possible through the court process, we keep that to a minimum.
And our first quarter collection rate was 98, 7%. Our April collection rate was about 97% and that will grow in line with the first quarter over the coming weeks. So from a collection standpoint always as it normally is.
Alright, Thanks, guys and good to have the call hold music returned to the boss.
[laughter].
Thank you and the next question is from Craig to Chare off from B Riley FBR. Please go ahead.
Yes, hi, good morning, guys. Congrats on the Triad line of credit are you seeing other banks showing interest in financing Russell house at those kind of terms.
Yes, we are and we continue to.
Look at other banks and we continue to try to increase our banking facilities on those rentals because it is an untapped market for us it is an untapped.
The area, where we can put additional financing on.
Got it and can you tell us how many homes in rental leases are supporting that $30 million loan.
Yeah.
So that's a line of credit that is a lineup.
Correct, that's a line of credit and right now there is.
This is fully available we have not put anything on that line of credit yet.
Got it so does it work, where basically you at homes to to access the debt or have you just sort of allocated a certain number of homes and then you can you can pull that down if and when you need it.
No we actually we access it when you put in the homes that we need to put in.
A lot of times, what we will do is it will go from our line of credit for the floor plan directly to the lineup to the line for the rental homes.
Okay. That's helpful.
I appreciate the color on how you've been handling inventory, obviously, a tough time with all the supply chain issues.
During and sort of post COVID-19.
I think youre currently carrying about $88 million in inventory is a normalized level closer to what it was pre pandemic call it maybe $25 million to $30 million.
Well, because we're a larger I'd say $50 million today, but that that's where we'll be in the future and we have big plans as to how to get their part of the reason inventories high today.
You know, we solve the problem of getting the homes from the manufacturer, but once you solve that problem. You didn't know that you were going to run into a problem with utility companies being slow.
No.
Local inspectors being overworked setup.
Setup crews being overworked. So so had we been able to set up these homes quicker. We may have occupied even more lots today than we did we I think we did a phenomenal job I think it's amazing how many homes, we filled but we do we did and still have some delays pertaining to.
Two <unk>.
Problems that still exist in the supply chain, but we're solving those every day and we're going to get this thousand unit inventory.
Down to 500, and maybe next year keep at a 400.
Got it. So you think you would probably be able to work through most of that or at least get it to a normalized level by <unk>.
Late this year early next year.
Yes, correct.
Okay great.
You know just given the much tougher home purchasing environment than we were a year ago are you seeing any change in the credit quality of people coming to buy homes.
So from the application point of view right. We always have lots of applications to get denied but in terms of applications that get approved and people who are living in our communities.
At this moment it is still amazing that the blue collar worker has higher wages more ability to change jobs and is doing better than ever and as I called communities today on my way to the office people report better results than ever higher rents higher sales prices of homes in inventory.
We're moving quickly and so far so good on the employment front.
Are you know, we're near smokers were near Scott.
Scott, we're near a lot of manufacturers and business that provide goods to people that people always need we're also.
In Elkhart, Indiana, where the RV industry, maybe have to worry about high interest rates and high gas prices, but so far so good and one of the great things. We're doing is diversifying our geographic footprint and we believe the more communities we own the more our rentals are spread out our loss.
They're spread out the more stable our income stream becomes even if you have.
Regional disruptions and so we very much believe that as we grow the company.
First of all we're going to increase <unk> per share, but even if you did it even if <unk> per share stayed the same as your bigger is that income stream is even more diverse coming from more sources. We think eventually we're entitled to the yield on the stock going down because it's such a great stable income stream.
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Okay great.
I know you mentioned in your commentary that there were there were limited acquisition opportunities, but are you guys working on any and should we expect any closings over the next quarter or two.
Yeah.
Not over the next quarter I mean deals can come together quickly so I really couldn't can't touch on the third quarter yet.
Looking at a lot of opportunities at this point, we just haven't been able to find anything to pencils.
We also closed on seven properties 500 sites for $88 million last year of which most of that was value add acquisitions. So we're.
We're working on improving those properties, bringing in new homes, getting those numbers up making them accretive to earnings and looking at the whole picture in determining when to move forward on future deals.
Okay. Thanks I appreciate it.
Again, if you have a question. Please press Star then one.
The next question is from Jay Mccanless from Wedbush Securities. Please go ahead.
Hey, good morning, everyone great quarter. The the only question I had is can you. Please repeat what you said about where chattel financing rates are now and maybe how those rates compare to where they were a year ago.
So our chattel financing rates are about seven 5% on new home sales and $9, 99% on used home sales.
A year ago, maybe just over a year ago, our financing rate was actually 499% we had to move that up as rates started to rise.
Comparing that to our competitors right now they are probably for the most part in that eight 5% to 10% range for reasonable quality credit scores with 10% down.
A year ago, they were probably in line with where we are today.
Okay, that's great great quarter appreciate it thanks.
Thank you Andrew.
And ladies and gentlemen, this concludes our 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 as always gene Anna Brett and I are available for any follow up questions. We look forward to reporting back to you in August with our second quarter 2023 results. Thank you.
Yes.
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This is the last night of our tour Tonight.
Is that 86 Joe.
So one more time for the last time already.
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