Good morning, and welcome to the UMH Properties, Inc. First Quarter 2021 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] Please note, this event is being recorded. It is now my pleasure to introduce you to 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-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. 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 first quarter 2021 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. I am pleased to report that UMH continues to execute on our business plan, generating long-term durable value and improved earnings for our shareholders. We have spent years acquiring value-add communities in strong locations below replacement cost and making the necessary improvements to provide quality affordable housing. This strategy takes time to execute. But now that we have completed most of the turnaround work and provided the best form of quality affordable housing in these markets, our demand is very strong. Rental homes in manufactured home communities are the best way to pay us on the affordability of our product to our residents. Over the past few years, we have seen our hard work pay off. Communities that were one- or two-star communities when we acquired them quickly turned into three- and four-star communities. The improvements that we have made at the communities are now translating to increased occupancy, improved operating results and FFO growth. The results generated by this business plan gave us the confidence to move into new markets. We have begun to diversify our portfolio into the Southeast and look forward to producing exceptional results in these new markets. Normalized FFO for the first quarter was $0.20 per share, representing an increase of approximately 33% year-over-year. Our solid operating and financial performance in 2020 allowed us to raise our 2021 dividend, 5.5%, to $0.19 quarterly or $0.76 for the year. Normalized FFO covered the dividend for the third consecutive quarter. And going forward, we anticipate continued improvement of our dividend payout ratio. Moving on to operations. Total income for the quarter increased 15% to approximately $43 million. This increase was the result of a 13% increase in rental and related income and a 37% increase in sales of manufactured homes. Our operating…

Thank you, Sam. Funds from operations, or FFO, was $8.4 million or $0.19 per diluted share for the first quarter of 2021, compared to $6.1 million or $0.15 per diluted share for the prior-year period. Normalized FFO, which excludes certain non-recurring items, was $8.7 million or $0.20 per diluted share for the first quarter of 2021 compared to $6.1 million or $0.15 per diluted share for the prior-year period. These increases were due to our solid operating results, as well as the redemption of our 8% Series B preferred stock in October 2020. The full effect of the redemption will be seen throughout the year. Rental and related income for the quarter was $38.7 million compared to $34.4 million a year ago, representing an increase of 13%. Community NOI increased by 14% for the quarter, from $18.9 million in 2020 to $21.6 million in 2021. These increases were primarily due to community acquisitions, the addition of rental homes, the growth in occupancy and an increase in rental rates. Our same-property monthly site rent increased 3.8%, and our monthly home rent increased 3.5%. Our average monthly site rent is now $470 and our average home rent is $802. Same-property occupancy increased 320 basis points, or 750 occupied sites, over last year. Same-property occupancy is now 86.3% and same-property rental home occupancy is 95.7%. Sales of manufactured homes increased 37% for the quarter from $3.2 million in 2020 to $4.4 million in 2021. Our 37% increase in sales resulted in a sales loss of $237,000 for the quarter as compared to a $315,000 sales loss in the prior year. During the quarter, we have also strengthened our balance sheet by raising both common and preferred equity through our ATM programs. We sold 1.3 million shares of Series C preferred Stock at a…

Thank you, Anna. UMH has an important mission. UMH provides needed affordable housing for our citizens and residents. Our goal is to excel in the endeavor. The affordable housing shortage across the nation is becoming more apparent. The nation needs 3.3 million homes immediately to meet the housing demand. Additionally, 350,000 homes become obsolete on an annual basis. The manufactured housing industry can produce homes and sites at less than $200,000 per unit, including land. The average cost of a new manufactured home without land is $82,000 compared to site belt at $299,500 without land. All the while, high-rise apartments cost between $250,000 to $400,000 per unit to produce. Historically, obtaining approvals to develop new communities has been next to impossible. So, we have focused on purchasing communities with in-place approvals. Our ability to successfully revitalize properties has been proven. New government programs may enable us to develop new communities by eliminating exclusionary zoning and harmful land use policies. Under political discussion is down-payment assistance for lower-income individuals as a possible new program with potential for our industry. It is an exciting time. UMH is affordable housing provider. This gives us all an opportunity to contribute to society and to invest in our very worthwhile endeavor. The platform that we have built has proven to deliver quality operating results. Quarter after quarter, we have experienced double-digit sales and net operating income growth. Our 3,500 vacant sites and our 1,800 vacant acres provide us with a runway for growth for the foreseeable future. Building vacant sites improves our business results and provides immediate housing. Even before all our vacant sites are filled, we have to begin to develop new sites and new communities. Demand for affordable housing and housing in general is only going to increase. Demand for our product and our communities will only get stronger. We plan to call out $247 million of our 6.75% Series C preferred stock in July of 2022. Reducing our cost of capital from 6.75% to 4%, we generated additional FFO of $6.8 million or $0.16 per share. Our strong results are being recognized by the public market. We believe that if we crossed the $1 billion equity market cap mark, there will be an even greater investor interest in our company and in our story. We will now be happy to take your questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Rob Stevenson with Janney. Please go ahead.

Good morning, guys. Sam or Anna, you guys have raised $100 million between the common and preferred equity year-to-date and then also sold some of the securities portfolio. You talked about the $10 million acquisition you have under contract and buying additional rental homes. But that leaves a lot of capital deployed. Is there a pipeline behind that $10 million acquisition that you guys are raising the capital from? Is there something else that you guys plan on using that for, or just being opportunistic in raising the capital while the market's strong?

Well, the capital budget combined with acquiring the rental homes and the financing of home sales, all comes to $100 million. And then Brett is going to tell you what's pending on that.

Yes, sure. So, we've got the one property under contract, 204 sites, $10.3 million, that's in Ohio. We are very close to having another property under contract in one of those two new markets. Without having it under contract, they don't want to give away too much more information. We also see some other acquisition opportunities in these new markets that we've got letters of intent out on. So, in the coming months, we do anticipate growing that acquisition pipeline. So, there should be sufficient uses for that capital.

Okay. And then, the other one for me is, it - so, Monmouth is one of your biggest shareholders at this point in time. Have you - As part of the transaction with EQC, has there been any discussion as to what will wind up happening with the UMH stock? Have you guys either entered into a discussion or planned to enter into a discussion to trade some of your Monmouth shares for UMH? Are you happy to just have that sold into the market? Can you talk about that?

Well, we're not discussing anything that pertains to the Monmouth matter, but...

Now, we can't discuss the Monmouth manner, but the Monmouth has put out a very detailed merger agreement. And if you read that [ph], then there's nothing on that subject. So, I have to refer you to the Monmouth material that's on file.

Okay. Thanks, guys. Appreciate it.

Our next question will come from Keegan Carl with Berenberg. Please go ahead.

Hey, guys. Thanks for taking the questions. Maybe, first, can you give us some details on how you're sourcing deals in the South relative to your traditional Northeastern regions?

I'll just say that predominantly what we're doing is true value add. We look at the cost to build sites and how difficult it is to get the approvals. And in the communities, we've already acquired in the South, you're acquiring existing lots, water sewer, roads, everything in place generally for less than the cost of taking the land, engineering it and getting the approvals in the Northeast. Brett, go ahead from there.

Yes. And then, how we're sourcing acquisition. It's very similar to how we source them in our existing markets. Now that we've entered into Alabama and South Carolina, the broker community knows we're there. We've identified markets that we really want to focus on. We have our own employees cold-calling property owners and sourcing acquisition leads for us. And some other people that don't want to go through a broker will contact us directly and we'll see if we can negotiate a deal that makes sense. So, it's the same way as just the new markets.

Got it. And then from an occupancy perspective, can you give us any expectations on gains through rest of the year, just based on applications and kind of the level where that was 2019?

Well, applications are stronger than ever, sales are stronger than ever, rental occupancy as a percentage is stronger than ever. It's hard to say what's going to happen, is COVID completely gone in terms of you've had virtually no relocation during the past year. So, turnover has been way down. So, that may have a bit of effect, but at the same time, we look at our communities that have 70% occupancy and less because those are properties we bought to fill and they have quite a few vacant sites and we believe we'll continue to fill those sites. We have our expansions that are coming online in exceptional markets. Nashville's exceptional. And Countryside Village, south of Nashville; the expansion is complete, we're already selling homes. Memphis Blues, the next phase is complete. And there's one called Holiday just being complete right now, which is virtually in Nashville. So, all of those should create positive additional occupancy and sales and rentals. And on some of the other communities same-store, you may see a little bit of growth in vacancy because of the fact there has been no turnover at all in the past year.

Got it.

Yes. And the only point I would add there is, where we may have some turnover, we have very strong demand. Just to reinforce that point. And we've got waiting list at many communities throughout the portfolio.

And that's very helpful. Thanks you for your time, guys.

Our next question will come from Craig Kucera with B. Riley Securities. Please go ahead.

Hey, good morning, guys. You have the two properties in the Northeast where the tenants had a right of first refusal to buy them. Were they able to buy them, or could those properties still come back to UMH?

So, they are trying to buy them. I'm not involved in the deal. So, I can't give you too much more information, other than I know that a purchase and sale agreement has been presented to the seller by the residents. I really shouldn't comment too much more than that, but we reach out to the owner frequently. If it does fall out, we're still very interested in those acquisitions. But at this point, I don't have much of an update other than it seems to be moving forward with the residents.

Got it. Anna, you mentioned in your discussions with Fannie Mae that you're trying to get them to use rental homes as collateral. But have you garnered any additional interest among other lenders who are willing to lend against homes as collateral, similar to FirstBank, and expanding your line of credit?

Well, we haven't really reached out to any of the others because we do have our FirstBank line and they are very interested in expanding that line. But our main focus right now is on the Fannie Mae deal, because we think that obtaining low-cost GSE long-term financing is in the best interest, not just of us, but also of our residents, because then we will be able to continue with our rental home program at relatively low rates compared to rates for apartments in the area.

Got it. And I just want to circle back to your commentary on the portfolio. Did you say that you're planning on keeping it at $100 million? And if so, does that imply that you're expecting to sell throughout 2021, given where its value today.

Yes. It's - The securities portfolio is performing reasonably well and we expect that the money of the securities we invested will continue to perform well and we will reduce our portfolio as the values return to what the properties that the retail owned. Some people wanted us to liquidate the portfolio in the middle of a pandemic. And we said that, that doesn't make any sense at all. We don't need the portfolio. We use it for liquidity. We don't need it as much as we used to, but it always is good to keep $100 million on hand and we plan to keep $100 million on hand. So if the portfolio rises in value, we'll sell off portions of it. And to date, the portfolio is rising in value.

Great. With the one community that is under contract for $10.3 million, do you have a sense of when you think that might close?

Yes. So, that property is well into due diligence. There's a couple of weeks there. It should close at the end of second quarter, maybe beginning of the third quarter.

Okay, great. And Sam, when you're looking at the rising costs of manufactured homes, as you buy them from the manufacturers, you mentioned 40%. Do you think the market will bear rentals, that will allow your underwriting to continue basically as it has in the past, or do you expect maybe that there may be some compression of margins?

So, you're giving me the great opportunity to talk about the fantastic new UMH website and our marketing team and our drone videos. And basically, UMH has changed the image of manufactured housing communities. Our rental communities are highly desirable. And they are at waiting list. We have - I know our pricing power is limited, but the 40% increase in the price of the homes will not stop our occupancy because at this point, we can pass that additional cost on as we increase our rental home portfolio by about 800 to 900 units this year. There is some point where the prices could go up enough where I couldn't say that. But this 40% increase, because over the last three to five years, we have truly created a market for rental manufactured housing, word of mouth is incredibly in our favor. People who live in our rentals are very happy with the product and the pricing. They tell their friends. It generates additional customers. And again, the drone videos on our website and the friendly nature of our website provides a lot of new customers. And - We've completely changed the image of the rental home community and it's working very well in our favor.

I'm going to repeat what Sam said because I go on [indiscernible] at least every month and see what the competition is. And a general estimate is, for $1,400 a month, you get two bedrooms and one bath. And you go to UMH, you look at the drone videos, you look at the lovely upscale communities; and for $800 a month, you get three bedrooms and two baths. And we think our product is very, very competitive and that we do regret the dramatic cost - rise in costs. This is amazing that the home was rising so much in cost and value, but we have a good margin to stay competitive. And with our waiting list, we obviously are competitive.

Okay, thanks.

[Operator Instructions] Our next question will come from Brian Hollenden with Aegis Capital. Please go ahead.

Good morning, and thanks for taking my call.

Good morning. Thank you.

Just wanted to talk a little bit about the sales program. UMH sold 73 homes in the first quarter versus 62 a year ago. What is your near-term ability to ramp that up look like? And with 8,100 rental homes occupied, what is the demand from existing tenants to potentially purchase some of those?

So, on the last part first, we don't do a lot to encourage residents to purchase the rental homes. We sell them the homes if they want it, because if they're staying longer than three years, it's better for them. But in fact, in the last months, we've recognized that because replacement cost is up 40%, if you take an older, and I'm talking about a less than 10-year-old rental home, and you were marking it up 30% over what we have into it, it would still cost us money to replace that home. Replacement cost would exceed what we sell the house for. So, we really have no major incentive to sell rentals because we're going to have to replace the home and the replacement house is going to cost more than the profit margin on the sale of that house. Of course, if we can mark it up more than 30%, that would change that. But at any rate, with those numbers, we don't do it. On the sales, we have the ability to ramp up sales and we are ramping up sales. And sales might have been profitable the first quarter, but we opened up. We had already opened to the - more than a year ago, the Port Royal sales center. But in opening a new sales center, you have various problems. And so, the first problem was, we couldn't sell homes fast enough. Then, we picked up the demand and when we sell our homes fast enough, but the staff wasn't doing a good enough job on delivery. Now, we are completely operating efficiently. We sell homes, we set them up and everything is going well. But we had some losses on some of those homes in the first quarter that affected our profitability. And so, the future looks very bright because we fix these problems. Sales are growing, the profit margins are growing and it takes time to train people, takes time to open sales centers. And when you do something new, like a new sales center, things do go wrong. You have to fix them. But we're in the process of doing that and anticipate growing sales and growing sales profits in the future.

We also have expansions that we are selling into. So, that will increase sales.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Samuel Landy for any closing remarks.

Okay. 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 will be participating at NAREIT's REIT Week in June, which will again be a virtual event, and hope you'll be able to join us. We look forward to reporting back to you in August with our second quarter 2021 results. Thank you.

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