UMH Properties, Inc.

Good morning and welcome to UMH Properties fourth quarter and full year 2022 earnings conference call. Call participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing 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 your 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 to 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. The supplemental information presentation, along with our 10-K, are available on the company's website at umh.rit. I 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 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. The risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's annual 2022 earnings release and filings to the Securities and Exchange Commission. The company disclaims any obligations 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 explanatory and cautionary language, are included in our earnings release, our supplemental information, and our historical SEC filings. Having said that, I would like to introduce management with us today. Eugene Landy, Founder and Chairman, Samuel Landy, President and Chief Executive Officer, Anna Chu, Executive Vice President and Chief Financial Officer, Brett Taft, Executive Vice President and Chief Operating Officer, Jim Likens, Vice President of Capital Markets, and Daniel Landy, Executive Vice President. It is now my pleasure to turn the call over to UMH's President and Chief Executive Officer, Samuel Landy.

Thank you very much, Nellie. UMH continues to make progress executing on our long-term business plan by acquiring, expanding, developing, and renovating communities. In 2022, we completed the acquisition of seven communities containing 1,500 developed home sites for a total purchase price of approximately $86 million, and through our joint venture with Nuveen Real Estate, we acquired a community containing 144 developed home sites in Sebring, Florida, for a total purchase price of $15.1 million. In addition, we completed the development of 225 expansion sites. Normalized FFO for the fourth quarter was 20 cents per share as compared to 22 cents per share in the prior year. Our operating results were largely impacted by our investments to grow the company, inflation, and rising interest rates. We have increased the number of turnaround properties we are working on, and we have increased the number of expansions and to-be-built communities. These projects will ultimately result in greater income growth, but at their current stage, they require additional capital for improvements and expenses. Our communities continue to experience strong demand and should see increased occupancy and revenue gains as we are able to fill our inventories. The demand at the property level and our expected improvement in our operating results have given management and the board the confidence to raise our dividend three consecutive years by a total of 13.9%. Effective for 2023, we increased our quarterly dividend from 20 cents per share to 20 cents and a half cents per share, representing an annualized dividend of 82 cents and an increase of 2.5%. We believe that we are on track for future dividend increases as we continue to execute on our long-term business plan. Moving on to operations, total income for the year increased 5% to approximately $196 million. This increase was the result of a 7% increase in rental and related income and a 6% decrease in sales of manufactured homes. Rental and related income for the year was $170 million. Our operating expense ratio increased to 44.4% from 42.8% in 2021, which resulted in community NOI of approximately $94.8 million, or an increase of 4% over last year. Same property income increased by 6%, and same property NOI increased by 3% or $2.7 million. Our same property operating results were impacted by increased expenses as a result of inflation, as well as limited revenue growth due to the supply chain backlog we experienced in obtaining new rental homes. More importantly, demand is strong for both sales and rentals throughout our portfolio. During the year, we added 392 homes to our portfolio bringing our total portfolio to approximately 9,100 rental homes. Our rental home occupancy rates remain strong at 93.3%, and our monthly rent per home increased 5.9% to $873 per month. New rental homes improve the appearance of the communities and demonstrate to residents, appraisers, government officials, and investors that UMH continues to invest in and upgrade our assets. Our rental home portfolio consists of primarily new homes that are less than 10 years old. Our average expense per rental unit is approximately $400 per year. We turn over approximately 30% of our rental units on an annual basis with limited turnover costs. For the first half of the year, we were unable to get homes from our manufacturers. However, we are pleased to report that the backlog has eased and we now have over 1,000 homes that have been delivered to our communities and are in various stages of setup. We have strong demand and anticipate selling or renting the homes upon obtaining a certificate of occupancy. As we occupy these homes, revenue will increase and interest expense from floor plan financing will decrease. We are also making progress obtaining tenant, lender, and shareholder acceptance of rental units. Our rental homes improve the quality of the community which thereby increases the value of all homes and the community itself. Fanning May has worked with us to lend not just on communities, but also on the rental homes and the revenue generated by them. In 2020, we closed on a $106 million credit facility at a 2.62% interest rate. These communities previously did not qualify for GSE financing because of the amount of revenue generated by rental homes. In March of 2022, we completed a $25 million addition of the rental homes to this credit facility. In September of 2022, we completed our second financing with Fannie Mae that included the rental homes as collateral. This was a $34 million loan with approximately $4 million secured by the rental units. Our ability to obtain financing on rental homes justifies our business plan and allows us to invest this capital into additional communities and more homes, furthering our social mission of providing quality, affordable housing. We are working with our other lending partners on similar lines of credit that will allow us to obtain financing on rental homes at attractive terms. Our sales operation continues to perform very well. Although our sales for the year declined by 6%, we are very pleased with these results given that 2021 was our highest gross sales year in our company history with sales of $27.1 million, and 2022 was our second highest gross sales year in our company's history with sales of $25.3 million. The inventory shortages that we experienced most of the year make these results even more impressive. Despite gross sales decreasing by $1.8 million, sales for 2022 generated income of $2 million which is in line with the income from sales for 2021 because our gross profit percentage increased from approximately 26% last year to 31% this year. We sold 301 total homes, of which 144 were new homes. Our average new home sales price was $120,000, and our average used home sales price was $52,000. We are financing approximately 63% of our home sales. We have a total of $64 million in home loans on our balance sheet that earn us an average interest rate of 6.7%. We continued to execute on our growth plan by acquiring seven communities containing approximately 1,500 developed home sites with a blended occupancy rate of 66%. The communities were acquired for $86 million, or approximately $58,000 per site. These are value-add acquisitions that should become accretive as we are able to renovate the communities, fill the vacant sites, and generate sales profits. Additionally, we launched our Opportunity Zone Fund, which provides a source of capital to complete land development and value-add communities while limiting the negative impact to FFO during the first years of ownership. We are optimistic that higher interest rates may result in acquisition opportunities at reasonable prices. We completed the development of 225 expansion sites, which will allow us to generate sales growth and improve the community's operating margins because most of the expenses at a community are fixed. In 2023, we estimate that we will receive entitlements for over 800 sites and complete the development of 400 sites. Our greenfield development joint venture with Nuveen continues to progress nicely. At the end of 2021, we acquired Sebring Square, located in Sebring, Florida. This brand-new community contains 219 sites and is highly amenitized with a clubhouse, swimming pool, bocce ball, pickleball, dog park, fitness center, shuffleboard, and tiki hut. We are making progress installing and infilling the community with a mixture of homes for sale and rent. We closed on the acquisition on Rumrunner, also in Sebring at the end of 2022. This brand-new community contains 144 sites and is also highly amenitized. The joint venture allows us to build first-class communities while limiting the negative impact on earnings. We have a 40 percent stake in the joint venture and earn assets under management fees, management fees, and a promote percentage. We also have the right to and plan on purchasing these communities when the joint venture decides to sell. We have other opportunities in our pipeline and look forward to growing this joint venture in the future. We are one of the largest operators of manufactured housing communities in the country. We own a portfolio of 135 manufactured home communities containing 25,700 developed home sites. We also own two communities through our joint venture with Nuveen Real Estate that contain 363 developed home sites. Over the past few years, we have made investments in value-add communities and expansions that are beginning to see positive financial results. We have diversified our portfolio by entering the Alabama, South Carolina, Georgia, and Florida markets. Of our 25,700 home sites, 84.2% are occupied, leaving us approximately 4,000 vacant sites. Additionally, we have 2,100 acres of vacant land predominantly adjoining our communities that can be developed into 8,400 sites. 2022 was affected by the backlogs to obtain rental homes and inventory for sale. We have over 1,000 homes in various stages of setup. Once occupied, these homes should increase monthly revenue by $900,000 and annual revenue by $10.8 million. During 2023, we will increase our rents by 5%, which will grow revenue by an additional $8 million. At a 40% expense ratio, same property community NOI for 2024 will increase by $11 million. Additionally, home sales are estimated to increase by 20% to $30 million, with one million or more in increased sales profits. Our long-term business plan provides us with a runway to generate strong income and occupancy growth for the foreseeable future. Our vacant sites and our vacant land for expansion provide the company with sites in desirable locations that should result in increased rental occupancy and increased sales. We have positioned UMH for future earnings growth through the successful implementation of our business plan. And now Anna will provide you with greater detail on our results for the quarter and for the year.