UMH Properties, Inc.

Good morning and welcome to UMH Properties' fourth quarter and full-year 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by texting the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. It is now my pleasure to introduce your host, Ms. Nellie Madden, Vice President of Investor Relations. Thank you. Ms. Madden, you may begin.

Thank you very much, Operator. In addition to the 10-K that we filed with the SEC yesterday, we have filed an unaudited annual and fourth quarter supplemental information presentation. Supplemental information presentation, along with our 10-K, are available on the company's website at umh.org. I would like to remind everyone that certain statements made during this conference call, which are not historical facts, may begin forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements that we make on this call are based on our current expectations and involve various risks and uncertainties. Although the company believes 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. Risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's annual 2020 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 explaining story and 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 Lange, Chairman. Samuel Lange, President and Chief Executive Officer. Anna Chu, Vice President and Chief Financial Officer. Brad Taft, Vice President and Chief Operating Officer. Jim Likens, Vice President of Capital Markets. And Daniel Lange, Vice President. It is now my pleasure to turn the call over to UMHS President and Chief Executive Officer Samuel Lange.

Thank you very much, Nellie. Over the past year, the world has been thrust into a spiral of uncertainty that is yet to stabilize. The persisting pandemic, both domestically and globally, is still testing the resolve of families and companies alike. Our hearts go out to those who have been affected both directly and indirectly. We would also like to thank those on the front lines for combating the virus. While 2020 was a challenging year, UMH was able to deliver outstanding results on all fronts. Amid extreme uncertainty, unprecedented unemployment levels, and a shrinking GDP, we were able to collect over 98% of our rent, improve our same property occupancy by 320 basis points, maintain rental home occupancy above 94%, improve our same property NOI by 15%, increased sales revenue 13 percent, recapitalized $95 million of 8 percent preferred stock with 2.62 percent mortgage debt, and ultimately improved normalized FFO per share by 11 percent. We are particularly pleased that we were able to increase our dividend by 5.5 percent to 76 cents per share for 2021. The positive operating performance achieved during such a difficult economic environment highlights the strength of our long-term business plan. I am pleased to report that normalized FFO for the fourth quarter was 20 cents per share, representing an increase of approximately 18% year-over-year and 11% sequentially. Normalized FFO for the year was 70 cents per share, representing an increase of 11%. Our FFO continues to trend upwards and has covered our dividend two quarters in a row. The positive impact to FFO from the refinancing of our 8% Series B preferred stock has not yet been fully recognized as the preferred was redeemed on October 20th. UMH continues to make progress on the financing front. During the year, we financed a portfolio of 28 unencumbered communities generating proceeds of $106 million at 2.62%. It is important to note that our investment in these communities totals approximately $116 million. These communities appraised for approximately $145 million, which represents a 25% increase. Most of the communities from this 83% occupied portfolio are acquisitions from the past eight years, and we have already demonstrated the value we have generated by implementing and executing our business plan. As we infill the remaining sites, we can increase our borrowing under the credit facility to capture the additional increase in value. As I have already mentioned, the capital generated by this financing was utilized to redeem $95 million of 8% Series B preferred stock, which will generate additional FFO of over $5 million, or 11 cents per share, annually. This transaction effectively demonstrates the earnings accretive nature of our business plan of acquiring communities below replacement costs, completing deferred maintenance and capital improvements, filling sites with homes for sale and rent, and then financing the communities to capture the value created. The capital that is generated from financing reduces our overall cost of capital, resulting in improved earnings for shareholders. We are also working to obtain low-cost financing for our rental homes. In October, we entered into a $20 million line of credit, expandable to $30 million, with First Bank utilizing our rental homes and their income as the collateral. The rate on this line is prime plus 25 basis points. We anticipate growing this line in the future. We are also working with the GSEs and our lending partners to include the rental homes as collateral within our typical mortgages. Once achieved, this will generate a substantial source of long-term financing at low rates. Moving on to operations, total income for the year increased 12% to approximately $164 million. This increase was the result of an 11% increase in rental and related income and a 13% increase in sales of manufactured homes. Rental and related income for the year was $143 million. Our operating expense ratio improved to 44.1% from 48% in 2019, which resulted in community NOI of approximately $80 million, or an increase of 20% over last year. This is the 10th consecutive year that we have delivered over 10% rental and related income growth, and the fifth consecutive year that we have delivered sales growth of over 10%. Our ability to maintain double-digit growth in revenue and sales year after year continues to validate our business plan. Our same property results for the year were very strong. Same property NOI increased 15% or approximately $11 million over 2019. This is the fifth quarter in a row that we have achieved double-digit same property NOI growth. Applying a market cap rate of 5% to this increase in NOI results in value creation of $160 million after deducting the investment in our rental home program. This increase in NOI was the result of increased occupancy of 320 basis points or 718 occupied sites and rent increases of approximately 3.3%. Our rental home program had another successful year. During the year, we added 858 homes to our portfolio, bringing our total portfolio to 8,300 rental homes. We continue to maintain occupancy rates above 94%, and our monthly rent per home increased 3.3% to $790 per month. We are experiencing lower turnover than usual and increased demand for our product. We expect to be able to add another 800 to 900 homes in our portfolio this year. We are closely monitoring our inventory and ordering homes to adequately meet our strong demand. Manufacturers are reporting longer backlogs and increasing their prices. Every rental in our portfolio is more valuable because of this increase in price. We have long been of the opinion that rentals would perform well during a difficult economy. One of the bright spots to come out of this pandemic was to confirm our belief of how well rentals would perform in a challenging environment. Across our footprint, the rental market remains so strong that at times the biggest issue is being able to meet demand. Moreover, there is not much of this type of product coming online. Merchant developers do not build affordable multifamily apartment complexes, but rather highly amenitized assets where the intent is to have a best-in-class asset whereby the owner has the ability to aggressively push rents. These properties cost several million dollars to build, whereas we spend about $85,000 for the lot, purchase, and setup of a brand-new home, giving our residents an affordable product which they are unlikely to find elsewhere. Our future growth and our past success are based on our ability to provide rental housing in the right locations and at the right prices. We do this by building or renovating lots for manufactured homes. Each lot is approximately 5,000 square feet and has a 1,000-square-foot energy-efficient three-bedroom, two-bathroom home delivered from the factory. Rental manufactured homes are an attractive housing product at a very reasonable price, and our product is recognized by our residents as the best housing alternative for them. Growth sales for 2020 were $20 million, representing an increase of 13% over 2019. We sold a total of 323 homes, of which 140 were new home sales and 183 were used home sales. Sales profits improved substantially from a loss of $290,000 in 2019 to a profit of $768,000 in 2020. Our average sales price was $63,000 as compared to $60,000 in the prior year period. Our gross markup percentage in 2020 was 29% as compared to 28% in 2019. We have several community expansions in strong sales markets coming online that should drive additional sales growth. We believe that we are well positioned to continue to grow our sales profitability in 2021. Our expansion program is progressing as expected. We are working to obtain approvals for 700 lots in 2021. We have 378 sites that are currently under construction and anticipate obtaining approvals and completing the development of several hundred more. Our 1,800 vacant acres can be developed into 7,300 sites, giving us a meaningful runway to continue to grow the company organically for years to come. The acquisition market remains competitive, but we have been able to opportunistically acquire communities. In 2020, we acquired two communities containing 310 sites, of which 64% are occupied, for a total purchase price of approximately $7.8 million. These two communities are well located within our existing footprint, and we will implement our value-added strategy. Subsequent to year-end, we acquired one community in Alabama and one community in South Carolina. These communities were acquired for $8 million and contain 337 sites, of which only 42% are currently occupied. They are in areas with strong demand for affordable housing, and we expect to generate significant property value appreciation over the next five years. These are new markets for UMH, and we look forward to scaling our portfolio in these surrounding states. I would like to thank all of our dedicated employees who executed on their roles and responsibilities admirably during these trying times. As the global pandemic began, our employees worked hard to find ways that we could continue to operate our business efficiently. Our team developed new ways to do business, including virtual home showings, online rent collection, virtual closings, and more. Our excellent performance is the direct result of everyone's hard work and dedication to UMH Properties. We have a very strong long-term plan to increase per share earnings and funds from operations for decades to come. We plan on generating similar results in 2021 by obtaining our 4% annual rent increases, investing in an additional 800 to 900 rental homes, continuing to create efficiencies in our platform, opportunistically acquiring communities, and further improving our sales operations. Clearing fields, fertilizing the soil, and planting the seed costs money. Waiting for the harvest takes patience, and having the right weather requires a bit of luck. In 2020, our annual harvest per share increased nicely. We believe we are well positioned for continued future per share earnings growth thanks to decades of hard work. And now, Anna will provide you with greater detail on our results for the quarter and for the year.