Good morning, and welcome to UMH Properties Third Quarter 2023 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 my pleasure to introduce your host, Mr. Craig Koster, Executive Vice President and General Counsel. Thank you. Mr. Koster, 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 third 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 third quarter 2023 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.

UMH is pleased to report another quarter of sequential FFO growth. Sequentially, normalized FFO increased from $0.21 in the second quarter to $0.22 in the third quarter. Community net operating income increased by 16% for the quarter. UMH provides quality housing for an average rent of $922 per month in well-located communities using 3-bedroom, 2-bathroom energy-efficient factory-built homes on lots that are generally 5,000 square feet. These competitively priced rental units are in strong demand, resulting in less than 30% turnover, 94% occupancy and 98% collection rates. UMH has the ability to provide quality housing to households with incomes of at least $37,000 per year. Most apartment and single-family housing operators cannot provide housing for households earning less than $55,000 per year. UMH reduces housing costs, thus improving the lives of our residents. We now have 22,300 occupied lots in our communities. 9,300 of these lots contain homes that we own and rent to residents. The remaining 13,000 lots contain resident-owned homes, for which we collect lot rents. UMH owns 25,800 home sites, allowing us the opportunity to grow revenue by filling the 3,500 vacant sites. We buy communities for as little as $25,000 per site and make improvements to the communities and add professional management and marketing to increase occupancy and revenue by selling and renting homes and financing home sales. Our homes and communities are strongly desired as evidenced by our installation and occupancy of 900 new rental homes and sales of 122 new homes year-to-date. Sequentially, same-property occupancy increased by 172 sites or 50 basis points and year-over-year, it increased by 546 sites or 210 basis points to 88.4%. The growth in occupancy, combined with our 5% to 6% rent increases, resulted in rental and related income growth of 10% and NOI growth of 12.9% for the…

Thank you, Sam. Normalized FFO, which excludes amortization and non-recurring items, was $14.4 million or $0.22 per diluted share for the third quarter of 2023, compared to $13.1 million, or $0.24 per diluted share for 2022, resulting in an 8% per share decrease. Sequentially, normalized FFO increased from $0.21 for the second quarter to $0.22 in the third quarter, representing a 5% per share increase. We were able to obtain this increase in normalized FFO despite our operating results being 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. UMH is well positioned to grow FFO in the last quarter of the year as we continue to increase occupancy and revenue. Rental and related income for the quarter was $48.1 million compared to $42.9 million a year ago, representing an increase of 12%. This increase was primarily due to recent community acquisitions, the addition of rental homes and an increase in rental rates. Community operating expenses increased 8% during the quarter. This increase was mainly due to our recent acquisitions as well as an increase in payroll, rental home expenses, real estate taxes, insurance, waste removal, water and sewer expenses. Community NOI increased by 16% for the quarter from $23.7 million in 2022 to $27.5 million in 2023. Our same-property results are trending in the right direction. It is important to note that while total community operating expenses were up 8%, same-property operating expenses were only up 6%. Same-property income increased by 10%, generating same-property double-digit percentage NOI growth of 12.9% for the quarter. As we turn to our capital structure, at quarter end, we had approximately $687 million in debt, of which $442 million was community-level mortgage debt, $145 million was loans payable and $100…

There is a severe shortage of affordable housing in the United States. Estimates of this shortfall are as high as 4 million units, which does not even account for the mass migration now happening across the southern border. Mortgage rates are now at approximately twice the levels we have seen in recent years. Home prices have remained elevated due to the lack of supply. Additionally, higher mortgage rates incentivize homeowners not to move further reducing supply. The home is being sold are in high demand driving prices higher. And once rates still begin to decline, pent-up demand could still support an overheated housing market. For all these reasons, demand for much-needed affordable housing should continue to increase. UMH pioneered the rental model using new manufactured homes. Renting a home is more affordable than buying a home by a large margin. UMH has built the foundation to provide the nation with much-needed affordable housing. Our value-add acquisition has positioned the company with 3,500 vacant sites and 2,100 acres of vacant land that can be developed into additional sites. Our vacant sites and land holdings have significant potential. As we fill the existing vacant sites and build more sites on our vacant land, these values can be realized. Additionally, our 3,800 acres of land in the Marcellus and Utica shale areas have growing potential. Global events over the past year demonstrate the importance of the United States moving towards energy independence. Our Marcellus and Utica shale holdings should increase in value as cracker plants, Panda plants and pipelines come online. UMH is strategically positioned to benefit from the affordable housing and energy crisis that face the United States. Congratulations to all our staff, who have executed so well on our mission statement to provide quality affordable housing for the nation.

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

Good morning, guys. Any of the seven communities that you acquired last year where you're still forcing turnover as you improve the community? The sequential occupancy boost remains solid for you guys throughout the year here. Just wanted to figure out if there was anything that would work to offset gains as we head into 2024 drive occupancy lower in the near-term or if that sort of 25 to 50 basis point quarter-over-quarter increase is sustainable from here.

Yes. Brett here and good morning. So we've done a lot of home removal at the acquisition from last year and a few of them were very high in quality where there's not too much home removal required. So we do anticipate being able to keep up with that 25 to 50 basis point improvement in occupancy quarter-over-quarter. All that is going to be dependent on the ability to get homes in a timely manner and the rental demand in the market. All of that remains strong at the moment so we're confident going forward.

Sam Landy here. I just want to tell you it's important in our investor presentation to look at Page 14. From 2018 to 2019, we went from 6,500 rentals to 7,400. From 2019 to 2020, we went to 8,300, which is the only other time other than now that we've added 900 rental units in a year. 2020 to 2021 went from 8,300 to 8,700 just 400; 2021 to 2022, 8,700 to 9,100 just 400; and now 2022 to the third quarter of 2023 9,100 to 9,900. And I think if you look at what it did to our results the year we went forward 900 units 2019 and 2020 how strong our results are in 2021. We expect the same to follow. During the course of this year 2023, we've had all of the expenses of adding the 900 homes. It's only in this quarter and the next that you're beginning to feel the benefit. But for all of 2024, you will have the full benefit of the 5% to 6% rent increases during 2023 plus a full year's of revenue from adding what by the end of the year should be 1,000 rental units. And just to mention one other thing while I'm talking, there were technical difficulties with the webcast. We will publish the transcript at our website umh.reit. And if anybody has any questions and for some reason can't ask them on this call due to technical difficulties, you can e-mail nmadden@umh.com and we will set up a conference call with you. So thank you and we'll keep going with the questions.

Okay. So, Brett or Sam, what quality condition are the two Maryland acquisitions in? Are these the typical you're going to need to take them down remove some homes? Or are these the better quality ones? And how pervasive are rental units in those communities today?

Okay. So, yes, it's two properties there neighboring properties. One of them is 49-units in very high-quality multi-section homes paralleled to the street. The other property of 142-units is lower in quality, which is where we will do our typical home removal as we're able to -- we're going to have to do some infrastructure work there and then we will start to bring in rental units. The 49-unit property is 100% occupied, so that's a stabilized portion of the deal. The neighboring property the 142-unit community is about 75% occupied, actually 70% occupied so that represents the upside in the DOE. In-place cap rate is expected to be about 5.5%. There is a mortgage that we're assuming at lower rates with about seven years of term left. So that should help us to be able to drive this to be an accretive acquisition in very short order.

Okay. That's very, very helpful. Thank you. And what is the current status of the Georgia asset? And when do you expect to see meaningful occupancy taking place there?

So the Georgia asset we acquired in January, we've been working through some permitting challenges with the municipality. We are just about through that. We do have our first move-in scheduled here over the next few weeks and we'll quickly start bringing additional homes and to boost occupancy and results.

Okay.

It's a good time to mention how well our southern strategy has done and how much the great percentage increase in the rental revenue in all of our southern states. So we've seen significant increase in revenue in each state we went to in the south. Brett, if you want to touch on that?

Yes, sure. So Deer Run in Dothan, Alabama, we acquired that property about 30% occupied. It's now approximately 80% occupied and growing. We should have that property full by the end of next year, revenue on a C-12 basis of 215%. The other property in South Carolina was slightly higher in occupancy when we acquired it about 47%. We did do a lot of home removal there and that property should be 100% occupied throughout the first half of next year. So revenue there is up 199%. Both of these properties had negative NOI last year and year-to-date they're both in the $300,000 range. So we're on track with where we expect it to be and we look forward to continuing to improve them as we move forward.

Okay. Thanks, guys. Appreciate the time.

Thank you.

The next question is from David Kellichan, a private investor.

Good morning. I'm calling from Fort Lauderdale. I just have a question. I was wondering if UMH would be interested in getting like government contracts especially like with FEMA and stuff due to global warming. We seem to be getting a lot more natural disasters and people needing affordable housing really quickly and on their own properties. Would UMH be interested in something like that? It's a little different section but unfortunately with global warming things seem to be getting worse and worse, and people don't want to be waiting so long to get back into their homes or their original properties, which they purchased because of the environment where they love to live. Thank you.

UMH stays focused on building operating renovating communities with manufactured homes for sale or rent. We're going to stay focused. We're aware that everywhere including in Israel there is a need for housing on an emergency basis. But the factories are the ones who have the ability to provide that housing. And the government can and FEMA does store manufactured homes just for that purpose. But that's a whole separate business and we're very proud of how focused we stay on building and renovating communities with homes for sale and rent.

Okay. Thank you.

The next question is from John Massocca with B. Riley. Please go ahead.

Good morning. Apologies if I missed this earlier in the call, but any update maybe on kind of either renter or owner credit bad debt expense how that's kind of trending and just kind of the outlook maybe as you should be seeing a softer macro environment how your kind of renters are kind of looking in that environment?

Yes. So we closely monitor this and we really haven't seen any material change in collections. Overall collections for the third quarter are above 98%, which is where they usually are. Our monthly collections are right in line with where they typically are at this point in the month. So we don't see an issue at this point but we are closely monitoring it. Anywhere where there could potentially be a problem we're really staying on top of those. But again, overall 98%-plus collections. And again, we don't see anything at the moment that points us to believe that will change anytime soon.

It's an important time to note that the affordability gap continues to widen and the widening of that affordability gap makes our product that much more in demand for waiting lists, for people who can pay, the rent for people doing everything in their power to pay their rent on time. When we began the turnaround property program where we buy and renovate communities and add rentals we said that that took three years. The pace we're going on the southern communities indicates that pace may reduce to 1.5 years, because nobody else can do what we do which is create a rental dwelling unit for as little as $130,000. So that gap between what it cost other people to provide the housing and what it cost us to provide the housing, results in us being able to charge lower rents, strong demand. Our drone videos will show you -- our newest drone video shows you how close our community is to the industrial warehouse, which is just a natural fit. And the warehouse needs workers. We provide the housing for the workers. And so we don't have receivables, because people -- workforce housing is definitely needed.

Okay. And then maybe as you think about the work that's done on the properties, where are you seeing -- how is kind of costs trending there whether it be kind of labor cost or materials? Have there been any kind of letup in those operating costs due to changes in where kind of macro inflation is going?

Yes. On the payroll front, we saw the majority of our cost increases last year. That's both through wages and making sure that we're fully staffed. So we're comfortable, with where those numbers are. And I really think that's evidenced by our expense growth of 5.6% for the nine months. Materials costs are increasing about in line with inflation, and we expect that to be the trend going forward as well. But that being said, we're very proud of our 8.4% revenue growth for the year on the same-property front, 5.6% expense growth and 10.4% NOI growth. I think it's important to note that the 900 rentals that we've set up and installed this year, are not fully reflected in our first nine-month numbers. Our rent roll for November is significantly higher. And overall our revenue is on a going forward basis what's in place right now, about $7 million higher than what was reported for the nine months.

I think in terms of like asking rents versus kind of market rents at a particular community I mean, how does that translate on a percentage basis some of those things that aren't in maybe the same-store pool?

We only raise the existing rents to residents approximately 5%. We price the new rents based on, what it costs to set up the house and what our market -- what market rents are. So, new rents are coming in closer to $1,000 per month.

Absolutely. And it really depends on the market and the home that we're renting. We've got multi-section homes that are renting for $1,200 $1,300 $1,400 in some cases, a little bit higher. But your typical 3-bedroom 2-bath single-wide unit is in that $1,000 range.

Okay. That’s very helpful. And that’s it for me. Thank you very much.

Thank you.

The next question is from James Gordon with Gordon Investments. Please go ahead. Q – Unidentified Analyst: Gentlemen I wonder if someone would comment, a little bit in depth on your sales of the preferred stock at the market. There's a couple of questions that concern me. Until recently, when loan rates started to drop, you're getting less and less in your aftermarket sales on your preferred stock. We're selling at a yield. It looked like the company would be saddled on these shares anyway on a quasi-permanent basis at about 7.5% interest. First of all, there’s several questions. Is there a yield that you guys will not sell at that you'll close the ATM and not sell the preferred or will you just keep selling it? Two, it seems to me that with respect to all the shares you're selling, the company is kind of on a treadmill dilution here. And I'm kind of puzzled about it. I know you have a great need for capital. I know you men are very good stewards of capital, but we're in a very funding environment with interest rates. And I'm wondering whether this is very expensive equity that you're selling the cost of this equity. And so my other question is that you've done some computations as to what your returns are your spreads over your preferred stock. You're paying 7.5, let's say when the price was lower. What is the spread that you're earning on the stock? How can you tell us or can you explain to us what is your thought process here and this continued selling particularly on the preferred?

Let me start and I have to start with what a serious problem the United States has for affordable housing the amount of the shortage. It is the number two problem of the country. And you'll see as Congress goes in session for the rest of the year, this is going to be the most talked about but of course the first thing is war and peace. And whatever we do that's number one. But as far as problems that we can do something to solve housing is critical and this nation has been able to produce whatever we need whether it's food. Everything in the world and then somehow we've gotten in a position where there's a 4 million home shortage in the country and that shortage is growing. Because of the fight against inflation, the other builders are cutting back instead of building. They're building 20% 25% less homes. And the affordable part of the housing market is simply closed to people and it can't be. People are entitled to shelter. They want to raise their families and they have to have a place to live. And so we're at the highest levels of the government and with the Congress of working on a solution to the problem. And that solution which the President is recognized has appointed a special person to be in this sector that manufactured housing and the unique communities we build and the price we come out with is simply amazing. I mean we say very lightly that we're at $1,000 a month of rent, three bedrooms and two baths and $1,700 a month to get two bedrooms and one bath, which isn't sufficient housing in a conventional environment. We are the solution and it is going to be a great business. So, on…

It's about 6.3% right now on 10-year fixed rate mortgages.

For the government-sponsored entities so we're raising money. So what I'm saying and suggesting is you have to blend all our sources of capital and we need equity to get the debt and it's highly profitable. It's one of the best businesses to be in but you have to take a long-term view of it. And we certainly want to continue meeting this housing crisis and continue to be a leader in the industry. So we're going to build at least 400 expansion units. We're going to try to put in 800 more new rentals a year. And right now we may be able to make some really attractive acquisitions. One of the fundamental things we look at is replacement cost. And if some other company wants the south 10,000 units below replacement costs we're going to take a good look at that too. And we -- and if we need to raise capital we'll do that. The manufactured housing industry is a wonderful industry because it is capital-intensive and we're going to continue to be a serious participant there.

Thank you.

[Operator Instructions] I'm showing no further 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, 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 look forward to reporting back to you in February with our fourth quarter and year end 2023 results. Thank you.

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