Good morning and welcome to UMH Properties’ Fourth Quarter and Full-Year 2022 Earnings Conference Call. All participants’ will be in 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 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-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.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. 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 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 the 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.

Thank you very much, Nelli. 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 homesites 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 homesites 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 $0.20 per share, as compared to $0.22 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 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 inventory. 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 $0.20 per share to $0.205 per share, representing an annualized dividend of $0.82 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…

Thank you, Sam. Funds from operations, or FFO, was $10 million or $0.18 per diluted share for the fourth quarter of 2022, compared to $10.1 million or $0.20 per diluted share for the prior year period. Normalized FFO, which excludes non-recurring items was $11.3 million or $0.20 per diluted share for the fourth quarter of 2022, compared to $11 million or $0.22 per diluted share for 2021. For the full-year 2022, FFO was $28.5 million or $0.51 per diluted share, compared to $39.1 million or $0.83 per diluted share for 2021. Normalized FFO was $46.8 million or $0.85 per diluted share for 2022, compared to $41.1 million or $0.87 per diluted share for 2021. Our operating results were largely impacted by our investments to grow the company through value-add acquisitions and developments, inflation and rising interest rates on our short-term borrowings. Rental and related income for the quarter was $43.7 million, compared to $40.7 million a year ago, representing an increase of 7%. For the full-year, rental and related income increased from $159 million in 2021 to $170.4 million in 2022, an increase of 7%. These increases were primarily due to community acquisitions, the addition of rental homes and an increase in rental rates. Community NOI increased by 2% for the quarter from $23.7 million in 2021 to $24.3 million in 2022. For the full-year, community NOI increased from $91 million in 2021 to $94.8 million in 2022, an increase of 4%. Sales of manufactured homes for the quarter decreased 5% year-over-year from $5.3 million in 2021 to $5 million in 2022. For the full-year, sales decreased 6% from $27.1 million in 2021 to $25.3 million in 2022. We sold a total of 301 homes in 2022, as compared to 370 homes in 2021. There were 144 new home sales,…

Manufactured housing and land lease communities is the best way to provide quality, affordable housing for our nation. Fannie Mae estimates that there is a 4-million-unit shortage of housing and that shortage is increasing on an annual basis. Furthermore, higher interest rates are resulting in fewer housing starts. Housing starts in 2023 are expected to be down 100,000 units or more. Additionally, most of the housing starts don't cater to the affordable end up to the market. Manufactured housing has the potential to increase our market share and help to provide the nation with much needed affordable housing. UMH is well positioned to execute on our mission of providing the nation with quality, affordable housing. We have invested in value-add communities with deferred maintenance and made improvements that allow us to provide desirable housing in each market we operate in. We have expanded our communities and have over 21,100 acres for the development of additional homesites. We are building new communities through our joint venture with Nuveen Real Estate and expect our new communities to be well received by municipalities, allowing us to obtain additional entitlements in the future. We have and will continue to play our role in addressing our nation's housing shortage. Our results in 2022 were impacted by the lack of new rental homes coming online, because of supply constraints and increased cost related to inflation and value-add acquisitions. It appears that we have passed the supply constraints and are back on track to achieve our annual goal of filling at least 800 rental units. As we are able to fill these units, our revenue growth will offset our expense growth and result in higher earnings for our shareholders. Additionally, our sales profits should continue to improve. Despite the challenges we faced in 2022, UMH had a year of many accomplishments and is well positioned for future growth.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Gaurav Mehta with EF Hutton. Please go ahead.

Thanks. Good morning. I wanted to ask you on your operating expenses. In your remarks, you talked about the expectations of revenue, exceeding -- offsetting expense growth and you talked about revenue growth of 8% to 9%. So going forward, should we expect that your expense growth will be lower than 8% to 9%?

Yes. So this year, for the full-year, on a same-property basis, our expenses were up 10.2%. The real drivers of that expense growth were our payroll up about 7.5%, waste removal was a significant item up over 15%, tree removal insurance, which are large item and real estate taxes. We do not expect the growth that we saw in those items this year and we do expect our expense growth to normalize in that 6.5% to 8.5% range. So we should be able to drive income growth above that. Regardless, even if we are in that 8.5% range, NOI growth will still be high single digits. But obviously, if we are able to reduce expenses further or grow revenue faster, those numbers can improve.

Okay, great. Can you maybe provide some color on what you're seeing in the transaction market for stabilized and value-add acquisitions?

Yes, sure. So there really aren't that many deals trading at the moment. There's a lot of deals available for sale, but we're just not seeing the pricing that you would expect to transact in this market. A lot of breakeven or negative deals -- negative spreads on the table. So cap rates for anything of decent quality, you're still seeing that 4.5% to 6% range. But obviously, the cost of debt is also about 6% and our cost of equity has gone up. So we're out there looking for accretive opportunities, but really not finding too much at the moment. On the value-add front, there are some deals available, but we're weighing the acquisitions we've completed, working on, bringing them online and making those accretive and as they are, then we can invest in additional value-add opportunities.

Okay, thank you. That's all I had.

Our next question comes from Rob Stevenson with Janney. Please go ahead.

Good morning, guys. Rental occupancy was down right around 100 basis points quarter-over-quarter. Was this just a timing issue with the new deliveries or any notable trends that you guys saw in rental unit demand in the fourth quarter?

Yes, rental occupancy is generally seasonal as is our sales business and everything else. And COVID did allow us to remain a little bit higher in the fourth quarter over the past two years and this year it did decrease down to 93.3%. That's actually what we would expect for that time of year. So we are working on turning those units over, getting them occupied. We're through tax season and we're coming into our peak season for rental. So that will allow us to rent those vacant units out and also expedite the infill of our units, which are really coming online at the right time, which should allow us to grow pretty quickly here moving forward.

Okay. And then can you talk about the pace of lease-up at the two Alabama assets or the two South Carolina assets. Looks like occupancy increased pretty hefty 340 basis points in Alabama and 130 in South Carolina. Are you happy with those paces? Can you go faster? How should we be thinking about those assets in particular over the course of ‘23?

Yes, those assets. And again, it really had to do with our inventory problem at the beginning of last year and the inability to get inventory. We closed on those acquisitions at the beginning of 2021 and that's really when the supply constraints impacted our ability to execute our business plan. So for the first year of ownership, we really did not have many new homes coming into those properties. But now that we have the homes, we are starting to see significant occupancy gains. We do expect the South Carolina property to be full by the end of this year and Alabama won't quite be full, but it should be up into that 70% to 80% range, potentially better, but it's all based on demand.

Samuel, it’s an important time to note, we have 1,000 homes delivered. So that's higher than our normal inventory we'd expect to have by far. We're getting through supply chain issues in terms of completing setup. But as these homes are setup, we're going to assume we continue at the 8:1 ratio of eight rentals per every one home sale and we believe we will fill 800 of these homes during the course of the year as rentals at better than $10,000 revenue per house and we will sell the 200 homes at higher sales prices and higher sales profits. It appears to me, it's a better time than ever to be in the business we're in, which is manufactured housing, rehabilitating communities, because those rehabilitated communities have extremely strong demand to increase sales profits and revenue growth through the rental homes. So we think we're in a extremely strong position going into 2023.

Okay. And speaking of the home sales, where are you guys offering financing today on new home sales and is very many people taking up the financing or is it almost all cash buyers at this point given where rates have moved to?

Our rates are currently at 7.5% and last year we financed about 62% of our home sales. I would expect that to be about the right percentage moving forward.

Right, that's for new homes and we -- for used homes, that rate is 9.99%.

Was that 62% heavily front-end weighted or was that ratably throughout the year? So fourth quarter wasn't much different than earlier in the year when interest rates were much lower?

It generally hangs around that 60% mark throughout the year.

Okay. And then Sam, didn't realize you were [swifty] (ph), just one analyst opinion, but I have to say that trading Springsteen for Taylor Swift on the call [home] (ph) music was a notable downgrade this quarter. So, alright, guys. Thanks for the time.

UMH is doing substantial work in Nashville. So we're broadening our musical horizon.

Well, you bought a New Jersey asset this year, so go back to Springsteen.

Very good. Very good.

And our next question comes from Craig Kucera with B. Riley Securities. Please go ahead.

Yes. Hi, good morning, guys. I think you mentioned last quarter, you had 700 homes delivered. This quarter we're looking at closer to 1,000 or over 1,000. As we think about that, is there -- are you anticipating that those get deployed as rentals, sort of, ratably throughout the year? Or is there a potential for an acceleration there given that the inventory is there and then hand after being, sort of, very light for quite some time due to COVID?

So the UMH team does an incredible job getting these homes setup, marketed and rented and we view ourselves in a race. The faster we rent and sell the home is the better for the 2023 year. We have no doubt the majority of them will be occupied on time for the 2024 year, but the sooner we get them occupied for 2023, the greater our revenue growth and the more we will reduce our expense ratios. So there are hold-ups. We have to wait for electric companies, gas companies to do their part in setting up these houses. But in terms of the manufacturers got us the houses, we're doing everything in our power to have them set up and ready to rent and sell. And our first two months of the year indicate that sales are growing and rental occupancy is growing and that we are on target to in fact fill these 1,000 units.

Okay, great. Changing gears, Anna, you added amortization of debt financing costs and FFO this quarter. Are you planning going forward to include that or was this just more for ‘22?

We plan to include it, because we did change the way we capitalized our company. In the past, we used primarily preferred stock and the offering costs on the preferred stock is not added. It's not subtracted from normalized FFO, but when you use debt, it is subtracted. So we just added it back just to be consistent. So we will continue to add it back.

Got it. And kind of in the same vein, I think you have about $60 million of mortgages maturing this year. I think they are about 3.8%. What are your expectations? Are you looking to refinance those in the market or are you looking at other sources of capital? I guess, what are your thoughts there?

Well, out of the $60 million, $44 million, I believe has already been repaid. So we have $44 million that is additional free and clear properties. Right now we intend to put it into our line of credit, because we did increase our line of credit from $100 million to $180 million. We wanted the financial flexibility of having that, so that's why we did it that way.

Okay, thanks. I appreciate it.

[Operator Instructions] Your next question comes from Jay McCanless with Wedbush Securities. Please go ahead.

Hey, good morning to everyone. So for the last four quarters, Indiana and Pennsylvania, which I think are just under 50% of the sites that UMH has, they have underperformed in terms of same-store rent growth relative to the average that the company is putting up. Is there any thought to either trying to push rents a little harder in those markets or potentially divest some properties where you can get the rental growth up to where the rest of the company is?

We see the rents going up and the occupancy going up. Go ahead, Brett.

Yes, yes. No, so Indiana and Pennsylvania, looking at them, expense growth was a little bit elevated. So, that's certainly something we're keeping in mind, but we do believe that, that expense growth will normalize this year and come back down into that 6.5% to 8.5% range that I mentioned earlier. Again, a big part of our portfolio now is obviously rental homes and we did have some seasonal rental home occupancy fluctuations and we're working on getting those units back online. We also have a lot of new homes being delivered to those properties. So we will carefully monitor the situation and we do believe that our rental revenue growth will go back in line with our expectations, but they did have a little bit of a down year.

I'll add to that. Some of our capital expenses for 2023 will include work on water and sewer lines and water and sewer plants. And we've seen returns on those capital improvements of as much as 20% per year as we reduce water and sewer leakage. And so those are expenses that can be reduced through capital improvements and will be -- and again, when we look at it, the biggest problem that we saw for 2022 was the lack of inventory. We were not able to add 800 rentals prior to 2022. So we couldn't have the income growth we've become accustomed to. Had we had that income growth, it would have offset the expense increases and we still would have had high single-digit, double-digit operating income increases. And depending on the timing of filling these 1,000 units, whether we're going to see those type of results in 2024 or 2023 is yet to be seen, but if we can fill them quick enough, it will be 2023.

Our policy is taking a long-term view. I don't understand why would sell a product, going up in value every year and that the demand is there. There is a tremendous housing shortage everywhere in the United States. The Governor of New York announced there's 800,000-unit shortage of affordable housing in New York. New York State requiring 80,000 homes a year to be built. Our experience with the Florida market is very, very favorable. The demand there and the future for the affordable housing, manufactured housing is excellent everywhere in the country. Our goal, we are very proud of the fact that we've got up to 25,000 sites and we are up to 9,000 rental homes and we plan to grow the company and increase the size of the company over the next decade.

So where are the majority of those 1,000 homes going to be sited?

Yes, hold on one second. So we've got 50 homes in Alabama, 100 in Florida, which is really through the joint ventures. So we can subtract that from the total, but 168 in Indiana, 93 in Michigan, only five in New Jersey, because occupancy is so high. New York 43, Ohio 317, Pennsylvania 262, South Carolina 19 and Tennessee 94. So as you would expect, heavily weighted towards where we own the most of our assets in Ohio, Pennsylvania, and Indiana. But a good amount of homes going into our new expansions in Tennessee as well.

Got it. I guess to get in the weeds a little bit, Anna, could you talk about what you think your cost of equity is, because there were heavy reliance that you all had on the ATM last year and even to start this year. It's hurting, kind of, your headline FFO and just wondering if the cost of this new credit facility is going to be a little more advantageous relative to where you think your cost of equity is and maybe allow UMH to be less reliant on the ATM in ’23?

Well, on the -- on our common stock, our dividend on our common stock and I know that's not truly the cost of capital, but our dividend on our common stock is less than 5% right now. On our preferred it's a 6.375%, which is our preferred. The mortgages are on a weighted average rate of about 3.93% and our bonds at 4.72%. Now the new facility is that, SOFR plus or minus a range based on our debt to assets ratio, our liquidity ratio and we believe that -- right now I believe that is around the 6% range. It's 5.6% and change. So, yes, because of our new BMO line we can utilize that line. We may be able to decrease our use of the ATM. But it all depends on our stock price. It all depends on our capital needs. If we have large acquisitions coming up, we would need to fund them. It all depends again on our capital needs as well as our stock price.

If I can add to that, Anna. Historically, the cost of capital, you have to take into account inflation. We've often in the history of this company borrowed money at 7% or 8% and earned much substantially more than that. With a country that's facing much more than 6% inflation, as you heard in the [past] (ph) presentation, the way expenses have gone up, but if you listen to the presentations of almost every week that is in the housing business, expenses are going up 7%, 8%. There is inflation in the country, and if you are able to borrow at 7% and the inflation -- the real cost of capital may be zero or 1% or 2%. As long as we're able to take a long-term position and have no liquidity problems, your cost of capital should take into effect -- into account inflation.

Got it. Thank you. And then the last question I had, is there a case to be made for stopping the acquisitions until you can stabilize the assets that you've already brought on-board. I don't know if those two are independent of each other, but would seem to at least in the near-term get some of these assets stabilized, especially if you're trying to get 1,000 home site, does it make sense to hold off on new acquisitions to get those homes and some of these newer acquisition parks up and running?

Well, we do always evaluate the impact acquisitions will have on FFO and we do turn down large portfolios, strictly because they would negatively impact FFO. We're very happy with the acquisitions we did the past year. We hope that in the next few quarters we will be reporting to you accelerated rent growth probably beyond what people expect on both the rent and the sales income. And if that occurs, we're certainly going to -- want to do more of what we're doing. But at this moment, we do agree. We have plenty to do. We have 4,000 vacant sites. We have 1,000 homes in inventory. We have plenty of ways to grow revenue and income right at this moment and don't necessarily need acquisitions to do that.

We will make acquisition if we can get long-term patient capital, and we're very proud of the joint venture we have. We are working on getting our securities designated as social. If we can get an ESG cash utilization for our preferred or common stock, we think some institutions may provide us with long-term patient capital. We are working on the OZ fund that we're hoping Congress will give special tax treatment to investments in opportunity zones that provide affordable housing. And that will let UMH have access to long-term patient capital. And again and again, the need is tremendous. Every 1,000 sites costs $100 million and every 1,000 homes with another $100 million. So -- and the need is in the millions of homes. So that we wanted to perform our mission statement, but we will only do it if we could be successful and these major undertakings, we've been working on for several years now and we are making progress. So we hope that this year we'll have some announcements and the change in the OZ fund. We hope to get designation of securities as social and we hope to increase the size of our joint ventures.

Okay, that's all I had. Thank you for taking my questions.

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. I want to mention [Steve Feglie] (ph) who is with UMH for 33-years passed away suddenly in his sleep last week. Steve was 56-years-old and married for 15-years. Steve was the trusted assistant of Jeff Wolfe, our Senior Vice President of Operations. To Steve there was no such thing as an obsolete home, because he could single handedly rebuild any home to better than new in less than two weeks. He plowed snow through the night, fixed water lines and flooded ditches in January, and was a tremendous part of the UMH team. Steve was six foot four inches tall, weighed 220 pounds of solid muscle, had a 36-inch waist and measured 48 inches shoulder to shoulder. He was big as a bear and gentle as a kitten and he will be greatly missed by all of us. So thank you, operator. I'd 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 look forward to reporting back to you in May with our first quarter 2023 results. Thank you.

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