Good morning, and welcome to the UMH Properties' Fourth Quarter and Full Year 2020 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. It is now my pleasure to introduce your host Ms. Nelli 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 and fourth quarter supplemental information presentation. This supplemental information presentation along with our 10-K are available on the company's website at umh.reit. 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. 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 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, Chairman; Samuel Landy, President and Chief Executive Officer; Anna Chew, Vice President and Chief Financial Officer; Brett Taft, Vice President and Chief Operating Officer; Jim Lykins, Vice President of Capital Markets; and Daniel Landy, 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, Nelli. 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%, increase sales revenue 13%, recapitalized $95 million of 8% preferred stock with 2.62% mortgage debt, and ultimately improve normalized FFO per share by 11%. We are particularly pleased that we were able to increase our dividend by 5.5% to $0.76 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 $0.20 per share, representing an increase of approximately 18% year-over-year and 11% sequentially. Normalized FFO for the year was $0.70 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 20. UMH continues to make progress on the financing front. During the year, we financed a portfolio of 28 unencumbered communities generating proceeds of $106…

Thank you, Sam. Funds From Operations or FFO was $8.5 million, or $0.20 per diluted share for the fourth quarter of 2020 compared to $7 million or $0.17 per diluted share for the prior year period. Normalize FFO which excludes realized gains on the sale of securities, and other nonrecurring items was $8.5 million, or $0.20 per diluted share for the fourth quarter of 2020 compared to $7.1 million, or $0.17 per diluted share for the prior year period, and $7.4 million, or $0.18 per diluted share sequentially. For the full year 2020, FFO which included $2.9 million of costs associated with the redemption of our Series B Preferred Stock was $26.3 million, or $0.63 per diluted share, compared to $24.6 million, or $0.61 per diluted share for 2019. Normalize FFO was $29.2 million was $0.70 per diluted share for 2020 compared to $25.2 million, or $0.63 cents per diluted share for 2019. Rental and related income for the quarter was $37.6 million, compared to $33.6 million a year ago, representing an increase of 12%. For the full year, rental and related income increased from $128.6 million in 2019 to $143.3 million in 2020, an increase of 11%. These increases were primarily due to community acquisitions, the addition of rental homes, and the growth in occupancy. Community NOI increased by 21% for the quarter from $17.8 million in 2019 to $21.6 million in 2020. For the full year, community NOI increased from $66.9 million in 2019 to $80.2 million in 2020, an increase of 20%. This is the 10th consecutive year that we have achieved double digit year-over-year NOI growth. We also manufactured homes increased 28% for the quarter, from $4.1 million in 2019 to $5.3 million in 2020. For the full year, sales increased 13% from $18 million in…

UMH has a 53 year history of providing quality affordable housing for our nation's workforce. We thought that we have experienced every economic cycle during these 33 years but COVID-19 has proven otherwise. Fortunately, UMH has always been positioned to withstand the Black Swan event. Our raising of $63 million of preferred stock to our ATM program in January could not have been better timed. This capital allowed us to not only survive but to prosper. This capital was utilized to fund our rental home program, expansion program, acquire communities and ultimately continue to execute on our long-term business plan. Results produced by our business plan this year were exceptional. And we believe that this business plan provides a runway for future growth. UMH has 3,500 vacant sites within our existing communities. We have 1,800 sites that can be developed into additional site. We have sales centers across the portfolios that are starting to generate significant profits. Most importantly, we can recapitalize $408 million of preferred stock at a blended rate of 6.6% over the next three years. Refinancing these preferred at 4% can result in an increase in per share earnings of $0.24. And our share price can increase by $5 using a 20x multiple. As the redemption dates approach we will analyze all of our available sources of capital to determine which method we will utilize to deliver reliable earnings growth and generate shareholder value. As positions in our securities portfolio continue to recover from the lows of the pandemic, we will analyze each company and determine when and if it would be advantageous to make sales among our holdings. We will sell possessions as other investment opportunities in our core business become available. 2020 was a transformative year for UMH. UMH has the wind at its back. Manufactured housing communities have never been in high demand. Our portfolio of communities has never been more valuable. UMH is positioned for meaningful growth with multiple levers that could help drive the stock price higher. As we have laid out in this call, we continue to achieve industry leading operating results. We have now had three sequential quarters with positive per share FFO increases. And we have laid out a plan to continue this performance moving forward. We hope that our recent dividend hike may be an annual occurrence going forward and we want to reward those that invest in UMH. We're evaluating our securities portfolio, and we'll continue to reduce it as a percentage of underappreciated assets. There's clearly a lot to be excited about. And with that, operator, we'll be happy to take any questions.

[Operator Instructions] The first question comes from Keegan Carl with Berenberg.

Hey, guys, thanks for taking the questions. So I guess to kick things off, how should we think about your sources of capital going forward? Maybe if you could walk us through the rationale behind issuing more Series D Preferred, and your thoughts on equity at your current price?

Sure, it's Sam Landy. Here all of the sources of capital are open to us. We have unused credit lines, we have the REIT securities portfolio, we can issue preferred stock. We can issue common through the ATM, and the cost of all those sources of capital are going down. Additionally, we continue to work on direct financing of the rental homes through the GSEs. So we are always evaluating every day, what is the lowest source of capital and which of those options we should take advantage of to meet the capital needs. The capital needs remain the same; we hope to add 800 to 900 rental units, $40 million to $50 million, build our expansions of approximately $20 million. The financing of home sales is growing, that's approximately last year was $17 million in new paper this year, maybe it'll be $20 million in new paper. And we're building additionally -- we're building the expansions. All of these things acquisitions will generate capital needs, but we evaluate it all the time. And if you look at our past, we created this platform of over a $1 billion in manufactured home communities. We own the 8,000 rental homes worth about $400 million or more. And so as that $1 billion of real estate goes up in value 4% that's $40 million. There's 40 million shares outstanding so that's a little more than 40 million shares outstanding, but it's about $1 share in appreciation, plus the FFO. And we continue to monitor that to generate the best returns possible for per share for shareholders. And it's starting to show today.

Understood, thanks for that. And then how should we think about same store growth in 2021? Is it kind of fair to think mid-single digit, just given your typical 4% rent increase on 80% occupied communities and then kind of a continued uptick in occupancy?

So the rental revenue, yes. Brett, go ahead.

So same store 2021, we feel very good about our prospects. By putting in 800 to 900 rental homes and achieving our 4% rent increases, we think that we can grow revenue similarly which was 8.4% in 2020. Now, expenses will increase a little bit this year, as things return to normal, there will be some travel expenses, some legal expenses, but generally, we should be able to keep that under or at 5%, which should result in low double digit, same store NOI growth.

Your next question comes from Rob Stevenson with Janney.

Hi, good morning, guys. Anna, where are you being told that you could price preferred stock today, if you guys went out with a new issue, rather than keep issuing off of the existing stack.

We've been told it's about the same as what the existing stack is. And so we have not gone to new issue as we need capital, we look at both as Sam said, we both look at everything that we have available including the eight community [VAM] as well as the preferred ATM as well as our lines of credits that we have available.

Okay, so the earnings accretion from refinancing the preferred stock over the next few years at 4%. The Eugene spoke about assumes that you replace the bulk of the preferred with debt and maybe some equity in there.

It could be a combination, it depends on at the time what the interest rates are and what our capital needs are.

But okay, because I was just trying to understand that's not a like for like that's not taking out your existing preferred with a new stack of preferred because the pricing gap isn't that big to create that level of accretion, right?

You are right.

It would have to be debt and or something else.

Right. You're correct. Because as we took out the preferred B we took it out with set when it comes to our preferred CNC, we will see at the time what the best course of action will be, but we have many avenues available to us.

Okay. And then Sam, you talked about, so you've got 3,500 vacant sites where you ended the year, roughly that amount, you got another call it 100 vacant sites from the acquisitions that you guys have completed here in the first quarter. So if I'm thinking about sort of 3,600 vacant sites and then you're probably going to add some sites in 2021 from your land bank. How did you guys come up with the sort of 800 to 900 rental homes in 2021? You guys did 858 in 2020. Why isn't that 800 to 900 rental homes in 2021 a 1,000 to 1,200? Is there some limiting capacity here is that the availability of homes, your ability that to lease them up in a reasonable period of time get them set up, helped me understand why sort of the rental home guidance for 2021 is pretty much flattish with 2020, rather than increasing here?

Yes, this year, at this moment, there are supply constraints; we have our orders that were previously placed. But certain factories have very long backlogs we are talking about, I've heard times latest December to get homes. But mostly, we expect to get the homes in a reasonable time, but it does create issues in projecting that we're going to grow rentals, more than 800 or 900 homes this year. We're building the expansion lots, we will have 400 lots complete, where we could have new home sales. We have the vacant sites where things are going well, to add the 800 to 900 homes. I know of a factory that told me the whole problem is just lack of employees. And so if they're able to hire workers, they can speed up production. So we're depending on the factories, and right now, it's difficult to say they can deliver more than 800 to 900 homes. But that is the only thing slowing us down to coming up with higher numbers.

Okay. And then when you're thinking about it for 2021, I mean, what's the -- so 800 to 900 rental homes you're going to sell some number of homes presumably, it'll be something in the neighborhood of what you sold last year plus or minus some level as to what you think the sort of organic sort of other move ins might wind up being is it, is basically the occupancy gain basically, at this point, coming 90% from the rental homes and 10% from people just leasing a pad and putting their own home on it. Do you see that changing to any extent, especially given any type of the supply issues on the home site that you're alluding to?

So, UMH has discovered why the apartment business has always been successful. There are always people who need affordable rental housing. And UMH has found that existing manufactured home communities in good location, adding rental units is the best way to provide the most affordable housing there is. And we're adding about 800 rentals for about every 100 new homes we sell. There are still customers for new home sales, the 55 and older people who are staying long term. And those opportunities for sales are growing because incomes are rising. The baby booms aging. So we expect sales to increase. We expect the owners of homes in communities to increase but we see ourselves right now like a franchise, Home Depot, Walmart, McDonald's, Burger King, we have a formula that works. And so now our issue in front of us is how do we go out and open as many new stores as possible profitably, and it's far more difficult to get approvals and build Greenfield new rental home manufactured home communities, that's far more difficult than buying existing communities who have deferred maintenance and did not shift over to the rental home model. So as good as our internal growth would be, I think it's time to become even more excited about our external growth opportunities, because we've gained significant confidence in that business plan. We've moved to new states in the past year and we're going to continue to move to new states in the future. So it's all a very exciting time for UMH.

The next question is from Craig Kucera with B. Riley FBR.

Hey, good morning, guys. Sam, you mentioned some inflation in manufactured housing costs. How meaningful has that been over the last quarter or so?

Well, it's the past year, and I think we're seeing 10% quote price increases. Brett, what do you think?

In the past quarter, it's probably about 10%. From prior to the pandemic, we're up 20% to 30%, depending on the location, which we are able to get in rent. So our numbers are still coming in strong, we're also seeing an increase in prices on materials related to home set and everything like that in the 10% range. So certainly prices are increasing.

Which goes to the store -- two rental homes depreciate, and when the cost to replace them is going up that much, they're not depreciating they're increasing in value.

Got it. And does that change the calculus of putting in a rental home? Are you able to pass through those? Or do you anticipate being able to put pass through those cost -- rising costs to your renters and to our buyers?

Exactly, as conventional home prices go up as apartment rents go up, our ability to increase the price of our product, and still be lower than any comparable housing, it's actually getting stronger, because apartment rents, home prices, and other costs are rising so fast and a lower percentage of a higher number is greater than the higher percentage of our small number.

Got it. I think last quarter, you mentioned you had a couple of stabilized communities under contract in the northeast, I think for maybe around $30 million, are you still likely to move forward with those? Maybe in the first half of this year?

It's a good question. And I was waiting for somebody to ask it. So those two properties are in a state that has --the residents have the first right of refusal. And there are companies that work with those tenants to try to put together groups to purchase the property. So they are attempting to buy it, we should have an update here in the next week or two on that. I know that they were trying to obtain the financing necessary to acquire the property. If they do, then they will own it. If they don't, it will come back to us. And that will be added to our acquisition pipeline.

Got it. And just given the improvement in your cost of capital, are you starting to maybe consider some stabilized assets that perhaps a year or so ago, you would have passed on because they just didn't pencil out? Or are you still primarily looking for more your deep value communities where you've got 40%, 50%, 60% occupancy and cleaned them up and making money that way?

We're interested in all properties based on how much we can grow earnings from them. But the simplest way to grow earnings, the lowest risk way is the turnaround properties. We're buying sites $30,000 per site, I just saw a community in Colorado, older community 200 sites sold for $90,000 per site. So if we can buy 40,000 or below, there's almost no risk, turn it around, increase the value per site, the revenue, the profitability. When you're buying those 95% occupied communities. It's -- there's much less room for increased income. And so to me, that means they are higher risk.

Got it. And you touched on your operating expenses expectations for this year. And I know they were down year-over-year this quarter and flat for the year. But I'd be curious, are there still opportunities on the sub-metering front to reduce your utility costs? Are those more or less behind you?

We're going to let Daniel Landy answer that. Go ahead.

No, there are still around eight communities that have not been sub-meter that are on public water. So we still have opportunities there. Yet for 2020 water and sewer expenses were flat and obviously occupancy went up so we've been way more efficient with water and sewer usage and we think going forward we can still be more efficient.

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, Eugene, Anna, Brett and I are available for any follow up questions. We look forward to reporting back to you in May with our first quarter 2021 result. Thank you.

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