UMH Properties, Inc. (NYSE:UMH) Q1 2024 Earnings Call Transcript May 3, 2024
UMH Properties, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, everyone and welcome to UMH Properties First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] also note, today’s event is being recorded. It’s now my pleasure to introduce your host, Mr. Craig Koster, Executive Vice President and General Counsel. Thank you. Mr. Koster, you may begin.
Craig Koster: 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 at umh.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 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 first quarter 2024 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 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 Lykins, 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.
Samuel Landy: Thank you very much, Craig. UMH is pleased to report continued improved community operating results and growing year-over-year earnings. Normalized FFO per share for the first quarter of 2024 was $0.22 as compared to $0.20 last year, representing an increase of 10%. Our year-over-year growth in per share earnings can be attributed to our solid community operating results. Overall, occupancy increased 220 basis points from 84.9% last year to 87.1% this year for an increase of 598 units. Sequentially, overall occupancy increased by 132 units. This improvement in occupancy, combined with our annual rent increases, generated an 11% increase in rental and related income and a 16% increase in community net operating income.
Our community expense ratio improved from 44.3% last year to 41.9% this year. We are on track to grow revenue by $20 million or more in 2024 as compared to 2023. This growth stems from our increased occupancy from last year’s rental home investments, our investment in 800 or more new rental homes this year and our annual rent increases. Our high-quality communities, exceptional operating platforms and strong fundamentals for affordable housing position UMH to continue to excel in 2024. The strength of our operating results and our earnings growth in 2023 positioned us to raise our common stock dividend for a fourth consecutive year. We are proud to increase the dividend by $0.01 per quarter or $0.04 per year, representing an increase of approximately 5%.
This results in a total annualized dividend of $0.86. Since 2020, we have increased our dividend four times by an aggregate amount of $0.14, representing a 19% increase. Our rental home portfolio continues to perform well. We now own over 10,000 rental units, of which, 95.1% are occupied as compared to 93.7% occupancy last year, representing a 140 basis point increase. We continue to experience 30% or less turnover per year and our expenses average only approximately $400 per unit per year. Our turnover costs are generally covered by the tenant’s security deposit. In most cases, the homes are left in broom clean condition ready for the next tenant. Excluding tenants that moved in last year, our average renter’s tenure is approximately four years.
We are on track to install and rent 800 homes in 2024. Backlogs from our manufacturers have returned to pre-COVID traditional levels of four to eight weeks. This has helped to reduce our interest expense and carrying costs, while allowing us to generate similar overall occupancy and revenue gains without negatively impacting earnings. Our annual investment in new rental homes yield approximately 10% on the invested funds. This investment is accretive to earnings and substantially improves our communities aesthetically and financially. Same property occupancy improved by 121 units from the fourth quarter and 545 units year-over-year. This represents an increase of 40 basis points and 200 basis points, respectively. Same property income increased by 10%, while expenses only grew 3%, resulting in a 16% same property NOI growth or $16 million annualized.
This increase in same property NOI substantially increases the value of our communities as demonstrated by our recent refinancing of three communities acquired in 2012 and five communities acquired in 2013. Our total investment in these communities, including capital improvement, is $52.2 million or approximately $41,000 per site. The communities appraised for approximately $108 million or $84,000 per site, reflecting an increase in value of $55.9 million or 107%. Gross home sales were $7.4 million as compared to $7.3 million last year, representing an increase of 1%. During the quarter, we leased our sales center in Belle Vernon, Pennsylvania to Clayton Homes. All the homes that were in inventory at the sales center were sold to Clayton Homes at the invoice price.
Excluding the homes liquidated in this sales center, sales of manufactured homes amounted to $6.4 million, costs of sales amounted to $4.2 million and the gross profit percentage was 34% for the three months ended March 31st, 2024. Last year’s first quarter sales were exceptionally high due to supply constraints pushing many 2022 sales to the first quarter of 2023. Our second quarter sales to-date are in line with our current sales projections for 2024. We currently have a pipeline of approximately $4 million in sales and expect to close those deals and grow our pipeline going into the summer. At quarter end, the balance of our notes receivable was $80.5 million at a weighted average interest rate of 7%. During the first quarter we financed approximately 53% of our home sales.
Over the last two years we have developed approximately 440 sites. These expansions are in good markets in Maryland, Pennsylvania, Tennessee and Indiana. We have made investments in these expansions, but they are not yet full and accretive to earnings. We believe these expansions provide us with premier sales lots that should allow us to generate profitable home sales, increased occupancy and more valuable communities. This year, we should obtain approvals to develop 800 sites and plan on developing approximately 300 or more sites. UMH is well positioned to grow the company through internal and external growth opportunities. We have 3,300 vacant sites which we plan on filling throughout our rental and sales programs. We have 2,100 acres of vacant land that will allow us to expand our communities.
We can profitably sell and finance homes. We can build new communities through our joint venture with Nuveen Real Estate. We can acquire communities when they are for sale at reasonable prices. Most importantly, we have a strong balance sheet which will allow us to execute on these growth opportunities. The fundamentals of manufactured housing are strong and UMH is well positioned to continue to grow through our established long-term business plan. Manufactured housing has two natural tailwinds, increasing GDP and inflation. We can add 800 rental homes and over 200 new home sales per year and the high quality of our communities adds value to our real estate. Our hard work grows our communities through developing expansions and by building 200 lots or more per year.
This allows us to increase the size of the company when compelling acquisition opportunities arise. Our hard work has positioned the company with one of the highest quality portfolios of manufactured home communities in the country. And now, Anna will provide you with greater detail on our results for the quarter.
Anna Chew: Thank you, Sam. Normalized FFO, which excludes amortization and non-recurring items, was $15 million or $0.22 per share for the first quarter of 2024, compared to $11.7 million or $0.20 per share for 2023, resulting in a 10% per share increase. Rental and related income for the quarter was $50.3 million compared to $45.3 million a year ago, representing an increase of 11%. This increase was primarily due to an increase in same property occupancy, the addition of rental homes, and an increase in rental rates. Community operating expenses increased 5% during the quarter. This increase was mainly due to an increase in payroll costs, rental home expenses, real estate taxes and snow removal. Our same property results continue to meet our expectations.
Same property income increased by 10% for the quarter and despite the increase in community operating expenses, community NOI increased by 16% for the quarter from $26 million in $2023 to $30 million in 2024. As we turn to our capital structure, at quarter end, we had approximately $672 million in debt, of which, $494 million was community level mortgage debt, $78 million was loans payable and $100 million was our 4.72% Series A Bonds. Total debt was 92% fixed rate at quarter end. The weighted average interest rate on our mortgage debt was 4.17% at quarter end compared to 3.91% at quarter end last year. The weighted average maturity on our mortgage debt was 5.1 years at quarter end and 5.3 years at quarter end last year. In this increasing interest rate environment, the weighted average interest rate on our short-term borrowings was 60 basis points lower at 6.79% at the current quarter end as compared to 7.39% at quarter end last year.
In total, the weighted average interest rate on our total debt was 34 basis points lower at 4.56% at the current quarter end, compared to 4.9% at quarter end last year. At quarter end, UMH had a total of $295 million in perpetual preferred equity. Our preferred stock, combined with an equity market capitalization of over $1.1 billion and our $672 million in debt, results in a total market capitalization of approximately $2.1 billion at quarter end, as compared to $1.9 billion last year, representing an increase of 12%. During the quarter, we issued and sold 1.3 million shares of common stock through our common ATM programs, generating net proceeds of approximately $20.4 million. The company also received $2.5 million, including dividends reinvested through the DRIP.
In addition, we issued and sold 194,000 shares of our Series D preferred stock during the first quarter of 2024 through the preferred ATM program, generating net proceeds of approximately $4.4 million. Subsequent to quarter end, we issued 190,000 shares of common stock through our common ATM program, generating net proceeds of approximately $3 million. In addition, we issued 19,000 shares of our Series D preferred stock to our preferred ATM program, generating net proceeds of approximately $444,000. From a credit standpoint, we ended the quarter with net debt to total market capitalization of 30%, net debt of securities to total market capitalization of 28.6%, net debt to adjusted EBITDA of 5.9 times and net debt less securities to adjusted EBITDA of 5.6 times.
Interest coverage was 3.1 times and fixed charge coverage was 2 times. From a liquidity standpoint, we ended the quarter with $39.9 million in cash and cash equivalents and $130 million available on our unsecured revolving credit facility, with an additional $400 million potentially available pursuant to an accordion feature. We also had $194 million available on our other lines of credit for the financing of home sales and the purchase of inventory and rental homes. Subsequent to quarter end, we expanded the borrowing capacity of our unsecured revolving credit facility from $180 million in available borrowings to $260 million in available borrowings. This facility is now syndicated with three banks, BMO Capital Markets, JPMorgan Chase and Wells Fargo as joint arrangers and joint book runners.
Additionally, we had $29.1 million in our REIT securities portfolio, all of which is unencumbered. This portfolio represents only approximately 1.6% of our undepreciated assets. We are committed to not increasing our investments in our REIT securities portfolio and have in fact continued to 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.
Eugene Landy: UMH is off to a strong start to 2024. Demand for affordable housing in our markets and across the country remain incredibly strong. Our communities continue to fill sites with homes for rent and sale. Our long-term business plan has favorably positioned the company with 3,300 vacant sites to fill and 2,100 acres of land to develop. These vacant lots and vacant acres are increasingly valuable as the affordable housing crisis continues to only intensify. We have done an incredible job rehabilitating old communities required that had deferred maintenance and deferred capital improvements. We have also made substantial progress expanding our communities and acquiring newly developed communities. Our improvements have transformed depressed communities into first-class communities, creating waiting lists for our homes.
This business plan has allowed us to profitably increase the supply of quality affordable housing in the markets we serve. Within the next five years, our community should be full and there will be limited lots available to place homes on. The housing crisis and the inability for conventional builders to deliver housing at an affordable price point highlight the tailwinds behind UMH in our industry. UMH should achieve nearly 100% occupancy and make continued progress developing our expansion land. All of this will translate to substantial earnings improvement, a stable income stream, and an attractive valuation. That being said, we must do more to combat the affordable housing crisis. A nation must work to expedite the approval of new land lease communities.
We are proud of the progress we have made educating the nation and our elected officials about the benefits of manufactured housing and community living. We invite all of you to attend the Innovative Housing Showcase in Washington, DC from June 7th to June 9th. We will be partnering with some of our manufacturers to display a HUD code, multi-section home and a modular single-section duplex on the National Mall. This event allows us to show our product to the legislators and lobby for changes which will allow us to produce more affordable housing.
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