Good morning, everyone, and Welcome to the 2025 REIT Week UMH Properties Presentation. I'm John Massocca, a senior research analyst at B. Riley Securities and one of the analysts who covers UMH, and I will be moderating the presentation this morning. With me, I have Sam Landy, President and CEO of UMH, as well as CFO Anna Chew and COO Brett Taft. UMH owns 141 manufactured home communities in the Eastern United States, with over 26,500 developed home sites at these properties. To tell us more about those communities and the UMH business model, I will now hand the floor over to Sam.
Thank you. First, I'll let you know that we have our Chairman here, Eugene Landy, founder of the company, and he's with us today. There we go. And we have, you know, the UMH online presentation, the annual report, and basically it comes down to we provide communities with factory-built homes for sale or rent. And we take the incredible efficiencies of a factory-built house, the fact that we can get a 1,000 sq ft, three-bedroom, two-bath house for $70 per sq ft, $70,000, and put it on a 50 by 100, 5,000 sq ft lot that we obtain sometimes for as little as $30,000 per lot. And if we build that lot new, about $100,000 per lot. And we take these efficiencies to provide a great community. And one of the things you learn over time is location's incredibly important, product's incredibly important, but it's the people who make the company.
Our people have a mission to provide great communities, to provide security for our residents, to provide a place where people want to live at the price of just $1,000 per month for our rental homes. Over the course of time, we've been doing this since 1968. Jim Clayton said in 2002, the greatest problem facing the industry was a lack of places to put the homes.
UMH solved that problem by buying communities with vacancies so that we have 3,400 vacant sites to fill, and we have 2,200 vacant acres of land, which we either obtained when we acquired the community or we bought land adjoining the community, knowing that the land you're most likely to be able to build a manufactured home community or expansion on was the land adjacent to you because the town gets to know you, and if you do a good job, they'll let you expand. We take all these things. We provide quality housing to people at the $1,000 per month price. We went to the rental units in 2011 because people couldn't get to retail financing. Since 2011, we've rented out 10,400 homes. Demand is not slowing down. We believe we can continue to add 800 rental units per year.
We can continue our sales, and the sales are the great variable. We've built great expansions. We've partnered with Nuveen to build new communities, three new communities constructed right now. Those new communities and those expansion sites and communities in great location will result in additional sales and sales profits. That is where we are today, and now we'll let you ask your questions.
Yes, we're going to open the floor up to questions here. One thing I would just highlight, if you do have a question, ideally go to one of the microphones just because we are being, I believe, recorded for a webcast. To kind of start things off, I'll go with a big picture question. How has the manufactured housing community space evolved in the last 10 to 20 years, and what changes do you expect in the next 10?
It's remarkable that this industry ever experienced a downturn, but it experienced a very fundamental downturn. 1970s, 1980s, and 1990s, 200,000 homes were shipped a year, 300,000 shipments, even 400,000 shipments. The demand for affordable housing never ends, right? There's a 4 million unit plus shortage of affordable housing in this country. How could it be that, you know, shipments fell to a low of 40,000 units in 2009? It's all the retail financing issue, right? We're providing quality affordable housing. People who earn $40,000 to $70,000 to $80,000 per year, if you tell them, you know, the price of a house is $100,000, well, they don't have $100,000. We have to be talking about monthly payment. In 2002, you lost the securitization of manufactured home loans. The government-sponsored entities used to guarantee manufactured home loans. Financing was readily available for the retail customer.
That's why Jim Clayton in 2002 thought the greatest problem facing the industry was a lack of places to put the houses. In fact, later, the lack of financing, when there was a fundamental shift throughout the country because of NAFTA, rural housing received—there started to be vacancies. Rural areas were not doing well. There was foreclosure in manufactured home paper. You lost the retail financing, and it got even worse in 2009 when laws were passed regarding ability to pay. UMH solved those problems for ourself by going to rental homes, and that worked. By solving the problem, lack of retail financing for people who earn $40,000 to $80,000 a year, go to rental houses, we have been able to fill communities that other people could not fill.
We have the capital to make the improvements, to take communities that have 20 years of deferred maintenance, deferred capital improvements. We make the improvements. We replace water lines, sewer lines, repave, upgrade clubhouses that have not been upgraded since the 1970s, and add these brand new homes for sale or rent and fill the communities. We have done that time and time again. We have, you know, quadrupled the size of the portfolio over 15 years, added the 10,400 rental units. Sales are over $30 million, and we think they are going to approach $40 million. It is a great product that the factories always build, and the factories always improve. The lending for the retail customer, the industry works with HUD and the federal government to try to improve the retail financing situation. Up to this moment, they really have not been able to do it.
UMH solved the problem ourself by going to the rental homes. We also finance homes ourself, so we have $90 million in loans today. Those are, you know, the greatest difficulties in the industry. How do you create supply? How do you finance the customer? UMH has supply, and UMH finances the customer.
Just to add to what Sam's saying there, you know, the problems with the retail financing really allowed us to go and acquire these value-add communities that allow us to produce, you know, the tremendous results we've produced. Since 2010, we've acquired 109 communities, 19,000 home sites. Those communities were 75% occupied, weighted average anyway, at the time that we acquired them. Our portfolio occupancy is now 88%. The reason we have those 3,400 vacant sites is because we opportunistically found communities in areas experiencing positive demographic and economic trends, implemented the rental home program, and substantially increased occupancy. I was looking at the numbers this morning. Over the past five years, we've delivered a 10.8% average same property NOI growth, and all of that is a reflection of this business plan that Sam just described.
I guess maybe on a shorter-term time horizon, given all the macro volatility that's kind of happened over the last six months, maybe even the last couple of years, have you seen any impact on your tenants' ability to pay? Also, has it impacted demand at all for the, you know, the offering you have in the residential space?
Yeah, no, not to this point. First of all, occupancy in the first quarter was up 227 units or 70 basis points over the first quarter of last year. Sales were flat, excluding the liquidation of inventory at a sales center. Our sales in April, as we reported on our first quarter earnings call, were up $2.5 million over April of a year ago, and our sales pipeline remains incredibly strong. Now, our existing tenant base, they're continuing to pay the rent. Our collections are in line with the historical norms, 98.5%-99%. So, you know, we closely monitor that. We'll continue to closely monitor it. We haven't seen any problems, and we're hopeful that we don't run into any, but obviously, we'll be ready to act if we need to.
How is kind of the business model and growth being impacted by tariffs, if at all?
Yeah. First of all, I think when you look at our manufacturers, we really have not seen a major increase in prices to this point. Prices are up 3%-5%. You know, given the demand we are seeing, given our waiting lists at a lot of properties, we can easily price for the increase in prices we are seeing there. Again, our rent collections remain strong, so our tenants are still able to pay the rent regardless of the price increases they are seeing in other areas of their lives. You know, we will see going forward if this leads to further price increases from the manufacturers. Looking back to 2022, our home prices were probably 10%-15% higher than they are right now, and we were able to achieve rents that allowed us to earn our 10% unlevered return on our rental home investment. Stay tuned is what I would say, but so far, so good.
I guess maybe, you know, it was a bit of an issue around, you know, kind of the COVID era with supply chain disruption. Have you seen any supply chain disruption given some of the movements in tariffs? Does that change how you view kind of inventory you want to hold in terms of homes to add to your rental portfolio?
There's been no change. A real important point. When we started buying rental homes in 2011, the homes cost $40,000 apiece, and we were getting about $700 per month rent, so you were grossing $8,000 on a $40,000 investment. Today, replacement costs for those same homes is $70,000, and those exact same homes rent for $1,000 per month. A giant argument when we began the rental program, right, people didn't know if it would work or not, was whether or not the homes would appreciate or depreciate. In fact, replacement cost has gone up on those houses, and the rents they collect have gone up. Another giant question was, how long would the homes last? We point out that in any manufactured home community that was built in the 1970s, you'll find homes in good condition from the 1970s.
Old homes have lasted 50 years, and these new homes that are better than ever are going to last a minimum of 50 years. The rental program truly worked. Now, what COVID did, the giant problem COVID created for us, the COVID year, 2020, we had inventory in place, right? You know, business was going on as usual. You had inventory to rent and sell. COVID hit, and guess what? We were not in our office, but we were selling houses and renting homes and going forward. We could not replace homes because the factories were closed. That was not a problem the COVID year, and it was not a problem 2021 because it was all money coming in and nothing coming out, so everything looked great.
In 2022, that became a major problem because what I'm telling you today is with our $200 million in revenue, we'll raise rents 5%, that's $10 million, and then we'll add 800 rental units, which will gross another $10 million. We will go forward $20 million, and additionally, our sales are increasing from $32 million. You know, nobody knows what that number will be, but sales are improving and increasing. The year after COVID, we could call the factories all we wanted, but we could not get homes. We could not add 800 rental units, and we had sold out all our inventory, so we could not sell homes. That was a terrible year for us. All we could get was the 5% rent increase. We could not get the additional revenue from the 800 rental units or from having inventory to sell.
The next year after that, 1,000 homes showed up all at once in the spring, which means we have suddenly $70 million in inventory. Interest rates went up, so it was costing more to hold inventory than it did the year before. Within half a year, we had rented out or sold almost all that inventory so that in 2024, everything was back to normal. As we get back to normal, 2024 perfectly normal, 2025 everything's going normal. You look at where was UMH just when COVID hit? We were doing great. The stock was doing great. The company was doing great. We should be extremely predictable, right? 5% rent increases, add 800 rental units a year. We have 3,400 vacant sites to fill. We have 2,200 vacant acres to expand.
When good acquisitions become available, we have access to low-cost capital, and we have the ability to make those acquisitions. We have all those things directly in place. Now, you know, there's a book about black swan events, and COVID was a black swan event. Barring things like that, we're back on our trajectory to, in my opinion, be very predictable on our average improvement, not so predictable on how good we could do because building these expansions in these new communities in the right locations potentially means sales can be greater than anybody expects. I think we're going to see that one day because of demographics. The 55 and older crowd who wants to downsize didn't save enough for retirement. We are the perfect home for them.
You can move to a great UMH community, have access to hiking, sporting events, whatever you'd like, and reduce your cost of living moving into one of our 1,000 or 2,000 sq ft homes on a 5,000 sq ft lot where you can garden, have your dog, no common wall neighbor above, below, beside you. We offer all those things, and the demographics for the retirement people who want to downsize, they're perfect for us. The demographics are also perfect for the young new families just starting to work and just starting to grow who want to save every dollar they can. Maybe they're looking to buy a more expensive house somewhere else later, but we are the perfect place for them to start out. That rental home created a reason for starting out families or starting out people to come to us.
Before you rented houses, the model was you had to own the home and rent a lot. You had to sign a 15- or 25-year note. You had to sign a lease, and you had to believe you were going to buy this house and be able to get financed for it and hopefully sell it for more than you paid for it. Renting simplifies all of that. All you need is 30% of your income to pay $1,000 per month and one month rent and one month security, which is $2,000. You could move in, decide if you like the house, decide if you like the community.
As your family grows, you could buy a more expensive house if you'd like, if you want, and your older relatives need a place to live right nearby so you could take care of them, rent a lot right next door for them for $1,000 a month. It is a great deal, great property type, and UMH does a great job with it.
As Brett kind of highlighted, you've had kind of high single-digit to even low double-digit same-store NOI growth over the last, you know, couple of quarters. It's translated into, you know, relatively high AFFO per share growth in the last couple of years. How sustainable is that? You know, as you get bigger, is that a scalable model, you think, at current levels? You know, you're adding 800 rental units this year, I guess, in kind of terms of guidance. Is that something you can kind of continue to do and build on? Just what's the pathway here for growth?
It's a very good question. As obviously, as we continue to grow revenue, we need to grow new revenue enough to make up that 10%, right? So we understand that. I just want to back up a second. The global supply chain potential issues haven't impacted us yet. We've got 6-10 week backlogs from our manufacturers. You know, obviously, with potential trade wars on the horizon, et cetera, we don't really know the uncertainty that that could cause. At the moment, things are good. On top of that, we've got 600 homes on order. We have 500 of those homes at our communities right now. This also relates to the tariff question. We know exactly what we paid for those homes and what we need to rent or sell those homes for.
That is a large majority of the home orders we will place this year and will receive this year. We feel very good from an inventory perspective. Now, yeah, we do think that we'll be able to generate high single to low double-digit NOI growth. It's going to fluctuate quarter to quarter. There's some seasonality there as well. Given the ability to add 800 homes, the 5% rent increases, that should result in income in the 7.5%-9% range. Expenses are the variable here. As you know, in the winter this year, we experienced snow removal costs that exceeded our expectations. That being said, our NOI growth was still 8.4%. You know, I consider that a relatively weak quarter, and it hit the numbers we were talking about.
You know, we're optimistic at least for the rest of this year and going into next year we can hit those numbers.
Okay. You recently completed some new community acquisitions for the first time in a little bit. What made those properties attractive, and what's the outlook for more acquisition activity in the near term versus maybe growing through kind of greenfield development or expansion of existing properties?
Two of the communities we acquired in New Jersey were, you know, beautiful communities in fantastic locations, but they had relatively low rent control rents of about $600 in what is easily an $800 market. Over time, right, nothing will happen quickly, but over time, if we broker the home sale, so a person wants to sell their house, if we broker that sale and finance it, we can get the customer the amount they're asking for the home, so that will make the customer happy. The home will probably sell for about $200,000. We'll get a 6% commission, $12,000, and the new customer should pay $800 plus whatever, however many years it is from now, add, you know, the percentage increase each year. The new customer should be willing to pay that.
Because you're going to get the existing customer what they want for their house, they're not going to care that you're raising the rent to the new customer to market. The rent control has vacancy decontrol, so it's allowed. We can take a longer-term view than the existing owner. The existing owner has a full property with beautiful houses at a low rent control rent, but UMH can acquire it. The current, you know, the prior owner was not actively brokering homes the way we will. We'll use the turnover to our advantage to increase rents and to earn those resale commissions.
Okay. Just if anyone has any questions from the audience, please feel free to kind of raise your hand, and we'll work you in. You know, changing gears a little bit and maybe getting Anna involved, what's kind of the capital needs for UMH's growth strategy? How kind of well pre-funded are, I guess, you today if we have a moment of kind of capital volatility and maybe highlight some of the recent financing activity that's gone on?
Sorry. In any year, we need approximately $100 million to $150 million a year in order to complete our business plan. Part of it is our loan. The biggest portion is to buy rental homes. That is about $60 million to $70 million a year. We have our sales. As Sam had mentioned, we finance our own sales. We finance about 60%, so that is about $20 million a year, and maybe, hopefully more. CapEx is about $20 million to $30 million, and we do have expansions of about $20 million to $30 million. All this comes to about $120 million to $150 million. However, that does not include acquisitions. Acquisitions are as they come. We do not know when an acquisition may come about, and we have to prepare for that. We do have a very strong balance sheet. Right now, at quarter end, we had $35 million in cash.
We refinanced just recently 10 communities. Those 10 communities, we paid off the mortgages on those 10 communities of about $45-$50 million, but we received proceeds of $101 million. We had about $50-$60 million in addition that came out of those communities. What's important with that is also that it proved our business plan. We had in total approximately $67 million, I believe, or $67 million in total investment in those communities. When it was appraised, it was appraised at $164 million. That's a $97 million increase. That proved our business plan. We purchased the communities. We added all the improvements. $67 million. Ten years later, it was appraised at $164 million. That's important. It proved our business plan, and we continue to do this. We take now, we take that money. We do additional.
The money is fungible, so we can use that money to, again, continue with our business plan. We have approximately $60 million still to refinance toward, I guess, toward Q3 and Q4. We anticipate that the same thing will occur. A couple of years ago, in 2023, we did the same thing. It was $50 million, and it appraised at $100 million or a little over that. We anticipate that the same thing will occur.
Question from the back.
Yes, Sparrows. I'll repeat it.
Yeah. Just when you think about high single-digit to low double-digit, same-store NOI growth, how does that translate on a per-share basis given the or that you have issued equity in the past and then, you know, return on that? How do you think about that?
The question was, how should we think about the translation from high single-digit to low double-digit NOI and bottom-line growth translating to per-share growth given investment they need to make?
It's called equity leverage. If you look at our share price, which fluctuates, you know, I'd rather the share price be $25 than $16, but we'll take the $17. If you're issuing stock at $17 and investing it in rentals that earn 10%, you're earning $1.70 per new share. The current shares are earning approximately $0.93 last year. Yep. $0.93. You know, we don't issue 100% new shares, so you don't get $1.70 to the bottom line. The percentage of new shares you issue, which gets leveraged with debt, so it's even really better than $1.70, right? If it's 50% debt, add another, you know, $0.70 to that. It's $2.40. The new stock is a way that you safely add $2.40 earnings for the new stock that you issue. It's clearly accretive.
What creates the picture in people's head that it may not be accretive was strictly the fact that we couldn't get the houses. The year that we couldn't replace the inventory and couldn't add the 800 rentals and couldn't increase sales makes it look like we did something that didn't work. There was nothing we could do about that. If you can't get supply, you can't grow. We are raising capital for a purpose. Capital does a number of things. Number one, size is liquidity, liquidity is value, right? Some of the biggest, best investors, they could know about us, but just say, you know, UMH doesn't have enough shares outstanding and doesn't trade enough shares for us to invest.
To this day, we do not have coverage from JP Morgan, Wells Fargo, or BMO, who would all cover us if we were bigger and trading more volume, which means all of their retail shareholders who currently know absolutely nothing about us would learn about us and may want to acquire us. Size is liquidity, liquidity is value. If we can productively issue new shares and put that money out accretively and grow, it will cause all the existing shares to appreciate. It will cause the dividend to grow. By the way, dividend is fact, stock price is opinion, and we have increased the dividend for a number of years in a row. The main objective is FFO per share growth, reduce the payout ratio, and increase the dividend. We continue on all those things. One more thing. We have approximately $3 billion in assets.
Let's call $1 billion the rental homes plus the notes, things that, you know, people can argue whether or not they appreciate. But $2 billion is real estate. And if that real estate goes up in value just 4%, that's $80 million. There's only a little over 80 million shares outstanding, which means the shareholder is getting the $1 appreciation that I just talked about, plus they're getting the $0.92 dividend. So that's $1.92 internal rate of return on a $17 stock. And in addition to that, we're forecasting or believe and have guidance for growth and the nature of real estate. When you own a manufactured home community a little bit out of the city, if we're a little bit out of Memphis, a little bit out of Nashville, a little bit out of Albany, Pittsburgh, Columbus, those cities grow.
When they grow and the population and the jobs and the business comes to you, the value of your real estate goes up more dramatically than the 4%. That is what we see happening, and that is what we position ourselves to do.
I just wanted to add that our normalized FFO increased 176% over the last five years. On a per-share basis, it did increase almost 50%. That shows that what we are doing, the issuance of our stock, is being used to create value for our shareholders. Additionally, our dividends over the last five years, we've had a total annual increase of 20%.
Okay. Question on that. Hopefully the mic works. Good. That 10% return threshold, is that a 10% internal rate of return or is it a 10% incremental return on capital? Is the 10% return threshold an internal rate of return or an incremental return on capital?
Yeah. It's the yield. It's in the presentation. It shows you how we purchase a $70,000 rental unit, rent it out for $12,000 per year. 30% - 40% is expenses. The rest is income, and that's how you get the 10% return.
Okay. Does that include any depreciation for the rental home?
It does not include the depreciation for the rental home. As just mentioned, giant argument whether rentals depreciate or appreciate. The fact that we bought the original units for $40,000, replacement cost is now $70,000. They originally rented for $700. They now rent for $1,000, indicates to me they appreciate.
I have just a follow-up on maybe just the difference in renewal rates and lease duration for people that just rent the home site versus the home and the home site.
We maintain waiting lists and satisfied customers by only raising rents to existing residents by 5%. That makes people very happy with the product, very happy with us. In markets, rents could be going up more than 5%, could be going up 10%. When the resident vacates and our rental turnover is only 20%-30%.
That's correct. Yeah. Our average rental tenant is staying, you know, four years right now. We think that that number may be improving as last year's turnover was only 20%. You know, homeowners, we've had homeowners that have been in our communities for 20 and 30 years. The industry puts out statistics that homeowners stay seven years, some cases more, and some cases less. But our rental tenants are staying four years on average, which we're very happy with that number.
The point being on the 20%-30% rental home turnover, they'll get raised to market, which means they'll get a higher increase than the 5%. So.
One last one in the back.
Yeah. I'm trying to be done question, but how are the rental homes spread out around your across your communities? Are there any communities that are 100% rental homes, or is it usually like a hybrid?
Memphis Blues and Memphis is a 100% rental community. In our annual report, it shows you on page, here we go, 30, exactly how many sites, occupancy %, occupancy. Okay. That page does not have the rental homes. In the presentation, we have the rental homes.
It's on page nine of the presentation. It has the state and the number of sites that we have in that state and the number of rental homes in that state. You can also see that we, most of the time, most of our communities are hybrid. We have some communities are all, there's one community that's all rental, and I believe there's a few communities that may be all homeowners.
Is that a new build, or is that something required?
We've been building it. It's called Memphis Blues. We had a verbal deal with the GSEs that if we built an all-rental community, they would lend against both the house and the lot. That's a really big deal because it's really innovative. You know, if the lot's worth $100,000 and the house worth $70,000, that's $170,000. If you could borrow 60%-70% against it in one GSE loan, that would be extremely beneficial. By agreeing to do one community as all rental, we believed at the time that the GSEs would finance it. We'll see what happens when we're complete.
Okay. Unfortunately, we've run out of time. So thank you all very much, and thank you to management.