Q2 2023 UMH Properties Inc Earnings Call
Right.
Good morning, and welcome to UMH properties second quarter 2023 earnings Conference call.
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It is now my pleasure to introduce your host Mr. Craig <unk> 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 STC yesterday, we have filed an unaudited second quarter supplemental information presentation. This supplemental information presentation, along with our 10-Q are available on the company's website at UMH Dot REIT, we would like to remind everyone.
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 uncertainties. Although the company believes the X.
<unk> patients 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 second quarter 2023 earnings.
Luis 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 I'm Cautioning language are included in our earnings release, our supplemental information and our historical SEC filings.
Having said that I would like to introduce management with US today, Eugene Landy, 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 <unk>, Vice President of capital.
Markets and Daniel Andy Executive Vice President is now my pleasure to turn the call over to <unk>, President and Chief Executive Officer Samuel Landy.
Thank you very much Craig we are pleased to report that normalized <unk> increased sequentially from 20 <unk> per share in the first quarter to 21 per share in the second quarter of 2023 during the quarter our share count increased by approximately $2 9 million share.
<unk> from our issuances through the common ATM, raising $45 $1 million in new equity, which is being rapidly invested in additional rental homes expansion lots community capital improvement and finance home sales.
Once these investments come online this capital is expected to generate future <unk> growth.
Our past capital investments have made UMH, a top performing provider of manufactured homes for sale or rent.
During the first six months of the year 534 of our 1100 homes in inventory were rented.
Additionally, we sold 174 homes.
Our August one 2023 rent roll is now seven 5% higher than it was on January one 2023.
Same property occupancy is now 87, 9% as compared to 86% last year, our same property rental home occupancy increased from 93, 4% at year end to 94, 1% at the end of the second quarter.
Our same property monthly rent per site increased four 7% and our same property monthly rent per home increased by 7% over the second quarter of last year.
These improved operating metrics resulted in same property income growth of 9% with expense growth of 42% generating same property NOI growth of 12, 6% or $3 million over the second quarter of last year.
Our same property expense ratio decrease from 42% last year to 40% for the second quarter of 2023.
The rapid occupancy of inventory should result in a further acceleration of our revenue growth this year.
We are pleased with our high single digit percentage increase in same property NOI for the first six months of 2023, and our double digit percentage increase in same property NOI for the second quarter of 2023.
In addition, total NOI growth for both the three and six months ended June 30th 2023 have both experienced double digit percentage increases.
Subsequent to quarter end, we paid down $34 $7 million of our floor plan lines, which have a weighted average interest rate of eight 8%, reducing it to approximately $4 million.
This should reduce our interest expense for the third quarter and beyond and help increase <unk> per share.
Further each $50 million in new equity represents approximately 3 million additional shares.
The earnings generated from investing that capital typically requires time to be accretive to earnings. We are therefore, very pleased with our sequential 5% increase in <unk> per share to 21 for the second quarter.
Gross sales for the quarter increased 18% to $8 2 million as compared to $7 million last year.
Net income from sales for the quarter was approximately $665000 as compared to $876000 last year.
Included in net income or higher interest expenses and elevated inventory carrying costs.
During the quarter, we sold 91 total homes of which 43 were new homes, our average new home sales price was $141000 and our average used home sale price was $45000.
Year to date gross sales increased by 38% from $11 $3 million to $15 5 million year to date, we have financed approximately 82% of our home sales we have a total of $73 million in home loans on our balance sheet that earn us a weighted average interest rate of.
Six 8%.
On the expansion front, we are on track to deliver 216 lots at four communities in our portfolio. These expansions are located in Maryland, Pennsylvania, Tennessee and Indiana.
These expansions are located at communities in good markets and should generate profitable sales.
We continue to make progress filling our newly developed communities owned through the joint venture with Nuveen, we have gotten the message out to local developers that we will buy entitled land or newly developed communities that allow them to earn a fair profit for their work. This has resulted in numerous deals that we are evaluating and may execute.
At the right time.
UMH continues to seek acquisitions that meet our growth criteria subsequent to quarter end, we entered into a contract to purchase two communities in Maryland containing 190 sites for a total purchase price of $12 $5 million, we're careful to evaluate each deal in a way the short term impact on earning.
<unk> for the long term yield expectations and value creation, our typical acquisitions take three years or more to become accretive but allow us to generate a strong long term operating results that we're reporting today.
Our growth is dependent on the ability to have vacant lots to fill those vacant lots are acquired two acquisitions development of expansion sites, our Greenfield development projects. All of these growth initiatives provide long term value for our shareholders and should continue to result in a growing dividend and stock price.
Having 55 years of operating experience gives us great confidence in our business plan and our ability to execute our goal is to continue to grow UMH into a national company by maintaining a sound balance sheet and continuing to invest in our growth initiatives. Despite the headwinds in the real estate market in a challenging economic environment.
UMH continues to excel our operating results are starting to positively impact the bottom line, even with increased interest expenses demand for affordable housing is at an all time high we are in a position to grow UMH on a national level and implement our proven business model and new markets, we have internal growth opportunities.
<unk> through the occupancy of our vacant sites increase in rents and through the development of our vacant land, we are 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 normalized <unk>, which excludes amortization and nonrecurring items was $13 million or 21 cents per diluted share for the second quarter of 2023 compared to $12 million or 22 cents per diluted share for 2022, resulting in.
5% per share decrease sequentially.
Sequentially normalized <unk> increased from 24 in the first quarter to 21 in the second quarter, representing a 5% per share increase we were able to obtain this increase in normalized <unk>. Despite our operating results being largely impacted by our investments to grow the company.
Two value add acquisitions and developments inflation and rising interest rates on our short term borrowings.
<unk> is well positioned to grow SSL throughout the rest of the year as we increase occupancy and revenue.
Rental and related income for the quarter was $47 1 million.
Compared to $42 $2 million, a year ago, representing an increase of 11%.
This increase was primarily due to recent community acquisitions. The addition of rental homes and an increase in rental rates.
Community operating expenses increased 6% during the quarter. This increase was mainly due to our recent acquisitions as well as an increase in payroll Westwood, one expenses real estate taxes insurance waste removal and too expensive.
Immunity NOI increased by 16% for the quarter from $23 3 million in 2000 $22 million to $27 million in 2023.
Our same property results are trending in the right direction.
It's important to note that while total community operating expenses were up 6% same property operating expenses were only up four 2%.
Same property income increased by 9% generating same property double digit percentage NOI growth of 12, 6% for the quarter.
As we turn to our capital structure at quarter end, we had approximately $727 million in debt of which $445 million with community level mortgage debt of $182 million was loans payable and $100 million was.
Our $4, 72% series a bonds.
75% of our total debt is fixed rate.
The weighted average interest rate on our mortgage debt was 388% at quarter end compared to 377% at quarter end last year.
The weighted average maturity on our mortgage debt was five two years at quarter end and $4 nine years at quarter end last year.
The weighted average interest rate on our short term borrowings is 742% as compared to $3 six 9% last year.
In total the weighted average interest rate on our total debt is 488% compared to 392% last year.
We continue to explore opportunities to raise lower cost capital to pay down our short term borrowings, which will result in increased earnings per share.
The point to quarter end, we paid down our floor plan lines to approximately $4 million. These lines had a weighted average interest rate of eight 8%.
At quarter end UMH had a total of $265 million in perpetual preferred equity.
Our preferred stock combined with an equity market capitalization of $1 billion and our $727 million in debt results in a total market capitalization of approximately $2 billion at quarter end.
During the quarter, we issued and sold approximately two 9 million shares of common stock through our common ATM programs at a weighted average price of $15 61 per share generating gross proceeds of $45 $1 million and net proceeds of <unk>.
$44 2 million after offering expenses.
Subsequent to quarter end, we issued has sold approximately $2 1 million shares of common stock to our common ATM program generating gross proceeds of $34 8 million and net proceeds of $34 3 million after offering expenses.
Additionally, we issued and sold approximately 712000 shares of our series D preferred stock through our preferred ATM program at a weighted average price of $21.85 per share generating gross proceeds of $15 $6 million.
And net proceeds after offering expenses of $15 $3 million.
Subsequent to quarter end, we issued and sold approximately 351000 shares of our series D preferred stock through our preferred ATM program generating gross proceeds of $7 6 million and net proceeds of seven 5 million after offering expenses.
Yes.
In May we entered into a 25 million dollar term loan with first bank. The term loan has a five year term with a fixed interest rate of 615%. The term loan is secured by rental homes as their leases in various communities throughout our portfolio.
Additionally, we entered into a new $25 million line of credit secured by rental homes out of their leases. This new line of credit also has a five year term and has a variable rate tied to prime.
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. We are pleased to have another line secured by our rental units.
Subsequent to quarter end on July 19th the company expanded its revolving line of credit with Osha first bank from 20 million to $35 million interest.
Interest is at prime with a floor of $4, 75%. This line secured by the company's eligible notes receivable.
The amendment also extended the maturity date to June one 2025.
From a credit standpoint, we ended the quarter with our net debt to total market capitalization of 34, 3% our net debt less securities to total market capitalization of 32, 4%.
Our net debt to adjusted EBITDA of seven times, our net debt less securities to adjusted EBITDA of six seven times. Our interest coverage was two five times and our fixed charge coverage was one eight times.
From a liquidity standpoint, we ended the quarter with 41 $5 million in cash and cash equivalents and $80 million available on our unsecured revolving credit facility with an additional $400 million.
Potentially available pursuant to an accordion feature.
We also had $99 $7 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 $36 $7 million in our REIT securities portfolio unencumbered.
This portfolio represents only approximately two 1% of our unappreciated assets, we are committed to not increasing our investments in this week securities portfolio and have in fact sell certain positions.
We are well positioned to continue to grow the company internally and externally.
And now let me turn it over to gene before we open it up for questions.
UMH is well positioned to succeed now and into the future. We have built a first class portfolio of manufactured housing communities that profitably provides the nation with much needed affordable housing.
We own a 135 communities containing 25700 developed home sites. We've built this portfolio of asset by asset and made the right investments and improvements to provide a durable income stream that is resilient during recessions.
We have both internal and external growth opportunities for the infill of our vacant sites expansion of our communities and development of new communities. Additionally, we have a profitable sales and finance company.
It should grow in the future.
We view ourselves as an important piece of the affordable housing solutions.
We have a product in model that is proven to work time and time again.
UMH deploy capital on the projects that take time to come online and become profitable.
At any given time, we have $100 million of more invested that has not yet income producing.
This results in a lag in earnings it's.
It's important to recognize the earnings per share.
An important metric, but not the only important metric.
Our real estate continues to increase in value.
As a real estate that increases in value, we should be able to recapture this trap decorate through refinancing.
Our business model reflects our aspiration that over 12 years, our assets have a double in value and if we assume 50% leverage or equity could triple the value there.
These potential gains are not reflected in today's financial results investing and we have a state takes time to produce results, but we have a 55 year history of executing on this business plan.
We are an industry leader with a platform that delivers best in class results. We look forward to generating increased earnings per share and a growing stock price while at the same time, providing quality affordable housing for our residents.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
And our first question here will come from Rob Stevenson with Janney. Please go ahead.
Hi, good morning, guys.
Can you talk about how the home sale business is trending I mean third quarter is usually fairly similar to second quarter and then you have some seasonality over the winter quarters, but is that still holding given financing rates and the pricing of alternative housing how should we be thinking about that as we trend into the back half of the year.
Yes, we are.
We're very confident in our ability to continue to generate the sales we've done over the first and second quarters.
We're sitting here with a 3 million dollar pipeline of homes for sale. So we believe we are on track to put up similar results that we did in the second quarter.
Getting the margins that we expect which is generally a 30% gross markup.
Demand appears to be strong across the portfolio. Our internal financing is really allowing us to continue to drive the sales as we are financing most of our home sales at a seven 5% interest rate where most of the competition in that market is 910, 11%.
Okay. That's helpful. And then can you talk about what condition. The Maryland acquisitions are in are these the typical under occupied assets that you'll need to move out some homes and improve the condition or are these some of the better quality of stabilized assets that you've bought a couple of recently.
<unk> rental homes in and better management to et cetera, how are they characterized.
Yes, so it's a little bit of both.
This isn't as much of a heavy lift in some of the previous acquisitions. We've done. So it's a 191 sites 49 of those sites are very high quality multi section homes perpendicular or parallel to the street I'm sorry.
And then the other community, which is the neighboring community. It was about 142.
Two sites and that one will require some value add your typical home removal capital improvements in rental home infill. So.
The combination of both of those allow us to get.
A portion of its stabilized and allow us to generate some of the long term growth opportunity that we've seen before.
And are those third quarter acquisitions at this point.
There is a loan assumption involved so it's hard to say exactly.
I would say, it's more likely the fourth quarter.
Okay. That's helpful. And then last one for me so same store operating expenses and.
And I talked about is it growing there, but revenue more so year to date, they're up five 5% what level of expense growth are you expecting in the back half of 'twenty three is that a sort of a similar amount to this five and a half is there something thats, increasing decreasing where you had more expenses are less expenses in the first half of the year.
I'll hit.
Anything that we should be aware of there.
Hi.
Sorry. This is Anna I think that it will increase maybe a smidgen, but it will be in.
In the range of inflation, so I would think it would be around the 6% range give or take and Sam here and I think now it's a good point to mentioned the decline in the expense ratio and because we are up to about 87% occupancy.
The additional occupancy of rental homes.
And the home sales.
Should be highly accretive should be reducing the expense ratio because.
This is additional income to communities that have predominantly fixed cost so between that and the expansion sites.
That we've invested significant sums in both the expansion sites and the Sebring projects. So we do have over $100 million and assets that are not currently.
Earning income, but they have the room to earn that income.
As we sell homes into the expansions and the new developments and as we rent homes. So all of that means that we have substantial ability.
To increase the operating income and you do see the expense ratio reduction in the same property.
Because you see that.
For these.
Three months as of June 32023, It was <unk> 41, and last year at this time it was that it was at 42%. So it was a nice decrease in the expense ratio.
What's the pace that you guys are running currently in terms of monthly.
Jacob rental rent.
Granted.
And sort of absorbing the vacancy in the rental home portfolio right now.
We'll answer that in one second but I just wanted to tell you amazingly from June 2022 to date, we added 775 rental homes of which 668 or occupied so we look at that is the equivalent of we built and filled a 668 unit apartment complex, which is.
Pretty incredible achievement and now Brett you can answer that yeah, absolutely. So for the first six months of the year, we converted 614, new homes from inventory to rental units I do realize that the number in the sub is $5 34, but that also includes some rental homes that were sold during the quarter. So new inventory that was actually converted was 604.
14 homes. Additionally, we felt another 127 homes in July so we were averaging over a 100 homes per month and that includes the slow first quarter, which is obviously the winter and it's.
Seasonal as he mentioned earlier so we're on track to meet that goal of filling 100 homes a month, our inventory is down to 550 homes now which is much closer to where it historically has been additionally, as Ana mentioned in her portion of the script and I believe Sam as well.
<unk>.
<unk> paid down our floor plan almost to zero at this point correct correct I mean, we had paid it down to.
To only have there.
$4 million and then as of today, we're pretty much down to zero.
And then I guess.
One other question from that how aggressive are you guys in putting new orders and these days I mean, what do you have like an order that hasnt been delivered thus far that that youre going to have to spend on or is the catch up in the production for the builders allowed you to reduce that substantially as you go through here.
Exactly I think things are back to normal in terms of most communities.
Shouldn't have more than five homes in inventory, there's exceptions, where sales and rentals are much faster. So you might have 10 homes in inventory, but never again will we have a 1000 homes in inventory and the proper number is probably below 500 homes and we're approaching that right now correct.
Just to add a little bit to that so.
<unk>.
We have 550 homes in inventory right now every month that we fill 100 homes. Its basically another $100000 in revenue you add our rent increases on top of that and our monthly rent roll is growing anywhere from 125 to 175 a month.
As to the question, we have been ordering some homes, but only at communities with very strong sales that have filled all of their rentals. So we've ordered less than 75, new homes. This year until the other part of that question. The backlogs are in the 4% to five week range with some factories in the six to eight week range. So things are much easier to get.
Just in time inventory, which will stop us from having such high inventory levels in the future, but Eugene Landy Chairman.
For the benefit of our loyal manufacturers.
Policy is to do 800, 850, new homes, a year and for 2024.
Hopefully, we'll get back on that and we'll be giving them. The type of orders we have in the past.
Alright, guys. Thanks, and thanks for the eclectic hold music today first time Ive heard Roger Miller in quite a long time.
Yeah.
Okay.
And our next question will come from Keegan Karl with Wolfe Research. Please go ahead.
Yeah. Thanks for the time guys. So Sam you mentioned carefully weighing near term dilution various long term accretion just kind of curious how many opportunities you guys pass on the last several quarters due to financing headwinds and how should we think about your external growth going forward from here.
We pass on opportunities all the time.
And substantial opportunities all the time.
<unk>.
The remainder of the question was in terms of.
Future growth and we weigh that with short term dilution. So if you look at the acquisitions, we did the last three years.
Because our business plan is it takes time.
Those will become more accretive next year, but theyre doing fantastically we have.
I have a document in front of me that shows me.
Ohio in the past 12 months we.
Since January 1st increased occupancy of 148 loss.
Indiana 84 lots.
Western Pennsylvania, 58 lot South Carolina, which is a new place 37 lots, Alabama 48, large Michigan 21 launch so these acquisitions do very well.
But again nothing nothing immediate and so we have to balance.
How many dollars are we going to put out how much are we going to increased expenses from the prior owner.
How much are we going to reduce occupancy how long will it take us to turn it around.
Every acquisition out there I believe will be good in seven years. If you have that kind of time horizon, you can make any of them good but if you're trying to do it in three to five years.
It limits, what you should acquire but we do believe more acquisition opportunities will come to us, but also recognize we have over 2000 vacant lands.
2000 acres of vacant land adjoining our communities.
And looking at that today. Some places we fought expansion battles to get those approved as manufactured housing such as Vineland, New Jersey, and Greenwich Township, Pennsylvania, near Allentown, and probably because of the significant shortage of housing the best bet is to stop fighting to get manufactured home lots approved.
And just zone at <unk>.
One acre residential and sell it so we're working on that.
To make.
Some of the.
Assets that are not currently.
<unk> income to make them productive for us because we have 2100 vacant acres not earning anything we have 12% vacancy that we intend to fill and I think we have $200 million.
<unk> invested in vacant rental homes expansions.
And other things that are not yet, earning money. So we have all of those internal things to grow and we are.
Trying to balance that issue with acquisitions.
Occupancy is down 80, 787% that doesn't leave us enough runway, we have to find more acquisitions with vacancies and get more lots built for the future.
DNI heavy chairman.
Our mission statement is there.
But the entire industry is to build a 500 new communities a year of 200 units or units per community. That's 100000 units. The manufactured housing industry can double its production and provide 100000 units and that would be just at the beginning of helping to solve.
The affordable housing crisis in that class. This is one that must be solved and so we're doing everything in our power.
To be able to grow our company and to build these additions.
They should all homes, we hope to get some legislative help and we hope to get some help from the.
Investors, who are socially conscious.
UMH has a social investment.
<unk> contribute to solving the affordable housing shortage.
Yes.
Thanks for the color there and I guess.
Good to see your same store revenue growth outpacing expense growth, which obviously is an NOI margin expansion.
I guess, how should we think about that in the balance of the year I mean, obviously, there's some seasonality in the business as far as the ramp up in occupancy and then then the decline in I guess, how much of this is attributed to operational efficiencies versus you just kind of adding homes onto your platform and more or less solving for the top line.
Yes, I think that.
As we indicated earlier this year that as we continue to fill our bacon rentals as we continue to stack quarter on quarter of occupancy growth and you compare that to last year's numbers, where we had a very minor improvements in overall occupancy and revenue growth that we should be able to continue this growth throughout the rest of the year and as we get into next year and order 800, New <unk>.
Homes and begin to fill those that we believe that this growth is sustainable we've always thought that we should be in the high single digit NOI growth, we're very happy with our double digit NOI growth for this quarter and see no reason to believe that that should slowdown anytime soon when we have those thousand homes in inventory. That's 1000 homes, we have to heat.
1000 lots, we have to cut the grass and as they fill instead the residents heating and residents cutting the grass and now they are earning revenue so that that reduces your expense growth pretty dramatically.
Yeah, Yeah, I guess just on the seasonality right like obviously peak moving seasons kind of ending in this range. So is it fair to assume that that gap will close between.
Or can we expect some NOI margin contraction from from where this quarter or is that kind of through the back half of the year is that how youre thinking about it internally.
Not at all not at all.
One when you talk to the managers there is a waiting list for rental units everywhere and just like we have a 7% increase in rental home revenue.
Ask them the question when the rental home becomes vacant.
<unk> increased the rent more than just the normal 5%.
And not all but almost all of the managers say, yes, which means on those rental homes that youre going to get growth over 5%.
And then again I consider that ratio operating expense ratio are extremely important because thats your profitability and you can look at the supplemental and you'll see the high percentage occupancy in most of our communities. So as those high percentage occupancy communities go from 86% to 100%.
Almost all of that revenue, 70% of that revenue should make it to the bottom line and then you have the communities that at this moment are difficult.
And they are the communities.
One of them has 1% occupancy some of them have 30% occupancy, 55% occupancy, but we purchased them that way knowing we'd fill them and we in fact are filling them and so that investment is not currently earning money, but as it fills up it will it'll hit a breakeven point and then it'll be.
Profitable in those communities, 87% occupied or more every new unit is like 70% additional profit so.
You know, we're an extremely good position for and just spin up along that exact same line.
What youre seeing now is the green shoots.
We didn't have the homes.
Until approximately January one we started to really fill them about January one so youre not going to have 12 months of revenue from them until later, so that 12 months of revenue is going to be even more accretive than it has been the past six months.
That's what I was getting at earlier with my point about stacking quarters.
As we get to the fourth quarter, which as you pointed out is seasonally a little bit slower we expect to fill rental units will continue to reduce our inventory, but youll have the rent roll growth that we achieved during the first second and third quarters, which are helping to boost that fourth quarter number as well.
Got it just one more here I know you mentioned the waiting lists just kind of curious where your top of funnel demand is today versus versus this time last year, just to get a better feel for where true demand levels are at.
This demand is through the roof.
Last year, there was no shortage of demand demand was still very strong, but we didn't have homes. This year, we have homes in place, they're ready for occupancy and we're able to capture that demand and turn them into move ins and increased revenue. So.
I personally don't think demand has been stronger.
Specifically on the rental front, but obviously, we're very pleased with our sales as well it's a that's.
That's a good point dimension.
UMH has an incredible team at the home office and out in the field.
We refine and improve our marketing all the time, we have our drone videos, we review, which communities have vacancies were.
Applications might be slower than we'd like and then we adjust the marketing and it immediately improves. So there is an incredible team here working all the time to increase sales increase occupancy increased profit and everybody out in the field and in the office is doing a fantastic job doing that.
Got it thanks for the time guys.
Again, if you have a question or a follow up you May Press Star then one to join the queue.
Our next question here will come from Craig Kucera with B Riley. Please go ahead.
Sure.
Hey, good morning, guys.
I think earlier in the year you had a goal I believe of deploying about 1000 rentals. This year and you are running ahead of that year to date at $5 34 is that still a reasonable target.
Yes, we believe that we can accomplish that and as I.
Mentioned earlier that that also includes some sales of older rental units. So for this first six months, we've converted 614, new homes from inventory into new occupied rental units and in July we did another 127. So we're very close to accomplishing that goal and we're still in our peak season.
I think that I don't want to guarantee we'll get to a 1000, but I certainly think we will get very close to 1000 will be well positioned to.
Be more confident in some of the orders we make next year to try and accomplish that again.
Got it and just I know you haven't been as active in buying homes year to date, but last quarter I think you mentioned that the pricing environment.
Environment had slipped and maybe it dropped 10% or maybe even more.
Is that trend continuing.
Sam here, so we're going to something at Clayton homes next week they have a.
Net zero energy house, they're working on putting solar panels on the homes. They are working on constant improvements to factory efficiency and.
No.
Because of inflation, it's hard to say they'll reduce the costs, but they're doing everything in their power to control the costs of the houses. So we feel very confident we will remain the best value per square foot.
That there is in housing.
Great and then Sam you had mentioned several times in your opening commentary that youre looking to become more of a national platform.
I know you've gone I believe as far west as Memphis, but as the natural move for you guys to go.
Someplace kind of contiguous in the portfolio, maybe Kentucky or North Carolina or are you are you may be potentially evaluating markets further west.
What cope it proved to us is that the rental manufactured homes in a community is the best form of rental housing for people, earning from 40000 to 80000 and they could be earning more than that but we're probably the only thing available.
<unk> meets the requirement of 30% of your income covering your housing costs for household income 40000 to say 60000.
And that model will work anywhere because anywhere someone tries to build apartments or if you look at the quality of older apartments.
I'm, putting brand new homes in a community and rent renting them out is better housing.
At a better price so knowing that this will work anywhere we want to go anywhere.
We're well aware of how difficult it is to buy land and get approvals.
We're trying to let all outside.
Developers know they can get the land get the approvals to sell to us fully approved or sell to us after they build it because we're highly confident we could add these homes as rental units and fill it and.
Also we like the turnaround properties, but we have to keep our eye on.
How many can we do without negatively impacting <unk> because it does take three years. So we watch all of those things and I should add.
We're becoming more confident and proving more ability to fill these homes faster than we thought we could so if youre talking about building a community you consider four sales per month as good 48 units per year you consider successful.
Well Theres communities, where we do 100 rental homes in a year and if that's the case that means we can do more projects expecting ourselves to turn them around quicker, which will make more projects more attractive to us and other states.
As to as geographical designs, we have.
A good strategy, that's been working very proud of having picked Nashville, and Memphis and now we're going into Florida, and we have the greatest migration in the latter stages history to the southeast South eastern part of the United States. So we have it.
Expansion plans and we picked out areas very carefully and to date, we've been successful in picking areas.
That will over perform the other areas actually though the housing shortage is so great that it's hard to find an area that doesn't need affordable housing, but we still want to be where the action is.
With the new factories are going we believe both in affordable housing and workforce housing and we want to build our parks, where the population is growing faster.
Okay great.
You had mentioned how youre raising renewal rents I believe 5%.
Most of your managers say, they could raise them quite a bit more can you give a sense of what.
Tenant retention is trending.
Well, let me clarify that because I want to answer that exactly like you asked it.
On resident owned homes.
Or existing people in rentals, we do not want to raise the rent more than 5%, we believe that creating that customer loyalty and that word of mouth has incredible value and that's why we have waiting list and that way, we can Phil Phil communities. So on those we don't want to go forward more than 5%.
And in fact, when someone buys a new home from us they get a long term lease matching alone, saying, Brent won't increase more than 5% or CPI, but we net out water sewer taxes garbage the things that come up the most so we're proud that our operating income went up so much with just a 5% increase to our.
Existing residents now on the rental home turnover that can go to market and the same with vacant lot. So that's why on the rental homes, we have the full 7% increase in rental.
Revenue because there we increase the rents to market, but on an existing.
We really tried to limit that to the 5% increase yes.
About 30% of our rental units turnover annually 60, plus percent of our residents stay more than two years and 40% of our residents stay more than three years that number is.
It remains pretty solid over the past few years.
Alright terrific. Thanks.
Okay.
This concludes our question and answer session I would like to now turn the conference back over to Samuel Landy for 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 November with our third quarter 2023 results. Thank you.
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