UMH Properties, Inc. (UMH) Q4 2013 Earnings Report, Transcript and Summary

Good morning. And welcome to the UMH Properties Inc. Fourth Quarter and Year End 2013 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 your host, Ms. Susan Jordan, Director of Investor Relations. Thank you, Ms. Jordan. You may begin.

Thank you very much, Operator. I would like to remind everyone that certain statements made during this conference call which are not historical fact maybe 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 risk and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's annual 2013 earnings release and filings with the Securities and Exchange Commission. The company disclaims any obligation to update its forward-looking statements. Having said that, I’d like to introduce management with us today, Eugene Landy, Chairman; Samuel Landy, President and Chief Executive Officer; and Anna Chew, Chief Financial Officer. It is now my pleasure to turn the call over to UMH’s President and Chief Executive Officer, Samuel Landy.

Thank you very much, Susan. Good morning, everyone, and thank you for joining us. We are pleased to report our results for the year ended December 31, 2013. UMH has made substantial progress in growing our portfolio and increasing the value of our company. During 2013, we acquired 17 communities, containing approximately 2,700 developed home sites for a total purchase price of $88.3 million. This represents a 27% increase in total home sites over the prior year. Additionally, over the past four years we have doubled our portfolio by acquiring 46 communities totaling 6,600 developed home sites. Our portfolio is now comprised of 74 communities with 13,500 developed home sites in seven states. We have opportunistically executed our growth strategy at prices for communities have recently risen substantially. We have achieved this growth by strategically purchasing communities in our target markets, where we now have greater economies of scale. It is anticipated that these locations will benefit from above average growth rate as a result of the abundant energy resources contained in our region. Additionally, we have entered into definitive agreement to purchase 12 communities with a total of 1,300 developed home sites for a purchase price of approximately $37 million. We are continuing to build our acquisition pipeline and are in various stages of negotiation for a number of community acquisitions. Our growth strategy is to purchase communities in strong geographic areas, make appropriate capital improvement, add sales staff and marketing, and thereby increase income and occupancy. We believe our business plan will increase the value of these communities dramatically. We anticipate adding an additional $100 million in communities over the next few years. Well community acquisitions often require additional investments and time and capital to bring these communities up to our highest standard. We are confident that these acquisitions will have a favorable impact in delivering long-term value to our shareholders. Interest rates have come down substantially and this has allowed us to achieve investments spread that will be meaningfully additive to our earnings going forward. UMH’s overall occupancy rate was 80.5% at year end 2012, 81.7% in the third quarter of 2013 and 81.1% at the year end 2013. The slight drop in the fourth quarter was due to new vacant sites coming online and a temporary turnover in rental homes. We have currently improved our occupancy to 81.8%. Applications for residency to buy or rent have also continued to increase. We currently have the potential to fill 2,700 vacancies. Housing demand in the energy rich Marcellus and Utica Shale regions where numerous UMH communities are located is expected to be particularly strong in the years to come. Based on the increases in traffic we are seeing the potential for continued occupancy improvements is high heading into 2014. And now, Anna will provide you with greater detail on our results for the quarter and for the year.

Thank you, Sam. Core funds from operations were $1.1 million or $0.05 per diluted share for the fourth quarter of 2013, compared to $1.7 million or $0.10 per diluted share for the fourth quarter of 2012. Included in core FFO for the fourth quarter are additional expenses relating to installation of the new computer software system, pension cost for an executive of retirement age and deferred maintenance at newly acquired communities. For the full year 2013, core FFO was $11.4 million or $0.61 per diluted share, compared to $10 million or $0.62 per diluted share in 2012. Core FFO excluding securities gains was $825,000 or $0.04 per diluted share for the recent quarter, compared to $1.1 million or $0.06 per diluted share a year ago. For the full year 2013, core FFO excluding securities gains was $7.3 million or $0.39 per diluted share, compared to $5.9 million or $0.36 per diluted share in the prior year, an increase of 8.3% on a per diluted share basis. Rental and related income for the quarter was $14.1 million, compared to $10.5 million a year ago, an increase of 34%. For the full year 2013, rental and related income was $53.5 million, compared to $38 million for 2012, an increase of 41%. Our community operating expenses for the quarter were $8.7 million, compared to $5.6 million a year ago, representing an increase of 55%. For the full year 2013, community operating expenses were $29.1 million, compared to $20.6 million for 2012, an increase of 41%. As previously mentioned, our community operating expenses for the quarter and for the year included cost such as additional repairs and maintenance, tree removal and removal of homes, associated with bringing our newly acquired communities up to our high standards. In 2013, we removed over 200 awfully homes…

(Operator Instructions) Our first question comes from Brian Hollenden of Sidoti & Company. Please go ahead. Brian Hollenden - Sidoti & Company: Good morning guys and thanks for taking my call.

Good morning. Brian Hollenden - Sidoti & Company: Generally how much capital do you put into a property upfront after the acquisition and sort of how long does -- do these elevated costs last for before normalizing?

Sam Landy here. It varies by community and when you purchase a portfolio of communities, say six out of seven could be in relatively good shape but the seventh could require substantial work. We have specific examples of communities where the revenue one year after we acquired them was equal to the expenses. So the expenses were 100% of revenue in the year of acquisition, but there is a purpose to that and eventually those expenses will fall. Normally expenses are under 50% of revenue maybe even 40% of revenue. UMH operates 32 communities with expenses under 50% and 43 communities with expenses over 50%. In the acquisitions when I look at it, we -- $2.4 million of our expenses the past year will not be re-occurring for the communities we already owned. But on the communities, we purchased some of those are going to need substantial additional repairs and maintenance or capital cost. And I could be really specific for you, if you like us to what those expenses are.

Let’s go for the next question.

Okay. Brian Hollenden - Sidoti & Company: Yes, so can you give us -- can you give us an idea of how many of your communities have a sale center and then what the goal looks like in terms of, you mentioned the plan is to add additional sale centers both on communities and off-site of the communities?

Let me add to that. The manufacturing housing industry has changed dramatically since I started 20 years ago. Previously we had manufacturers and the manufacturers had dealers. And we owned the communities and the communities were surrounded by sales centers. And the sales centers were very profitable, the manufacturers were very profitable and in particular years, they had 15% of the housing market. Some years, they sold 200,000, 250,000, 350,000 homes. We still believe in the manufactured housing industry. We believe that manufacturing homes and factories is the best way to built them. You build them soundly, you build them less expensively and we believe it’s a tremendous need to have product. Even though the industry has gone from 250,000, 350,000 homes down to 50,000 and we’ve only recovered 62,000. UMH still believes in the industry and believes it will recover to 150,000 to 200,000. The question is though, who will sell these homes, if the dealers are gone. The regulatory barriers have increased dramatically. And so we think it’s natural for the community owners particularly that own 50,000, 20,000 or 100,000 homes that have the sale centers. So we’re gearing ourselves up to sell. Right now we sell -- we owned 78 communities. We sell in each community. It’s a very expensive way to do it and it’s a -- personal wise, it’s very difficult to do -- to have the people who are trained to be -- sales to be in each location. So we are thinking of moving to a model in which we have regional sales centers and the individual products then we put the customer to the regional center. And we are actually going out and we are buying plots of land that historically were once regional sales centers run by other people that we know sold as many as $20 million homes in a particular centers and we’re going to open three or four of those centers and we try to consolidate our sales operations. So we don’t sell at each product but we have one product that has sales operation for three or four. And if you look at what we’ve done in acquisitions, we have now reached scale. In that we have communities, 15, 20 miles of product and we have numerous communities and we think we can successfully execute this strategy. Now we need the housing business to be good and as you know, most commentators think the housing business is going to be good in 2014 and maybe for decade after that. Brian Hollenden - Sidoti & Company: Thank you for that explanation. Very helpful. Just following up with another question, with the prices elevated a little bit, at what cap rates do you kind of view acquisitions as too expensive?

Well, we are looking at Florida and we haven’t figured how to do Florida yet because cap rates down there of maybe sub six. And even though we can borrow at 4%, 4.5%, when you get into all the work you have to do to take the order homes out. So that has declined work but we’ve been trying to buy homes at -- products at 7.5% cap rate. And we hope to borrow at 4.5% and again we hope to get in that cap rate, we hope to buy products that have 25% vacancies. So we basically get the vacant sites for much lower price. So, I’ll say, we get nothing, but if we’re able to fill the products, the cap rates will certainly improve. To date, we are very happy with our acquisitions. I certainly think our strategy will work. The competition though has certainly multiplied. I recently counted nine major organizations outbuying manufacturers, home communities and substantial size of scale. So there is a really lot of competition. So what we’re doing right now is we’re leading to buying products that are in our area and maybe somewhat smaller than our competition ones. And so they can’t be bothered with making $12 million acquisition of how many products?

Four products.

Four products with $12 million and because it’s right in our backyard and we have the ability to run it and we know the area very well and a standpoint to that. We are very bullish on the Marcellus and Utica Shale and Pennsylvania and Eastern Ohio. We think those areas are going to do better than the country. I think the country will do very well but we think those areas will do even better. So we are concentrating on these smaller acquisitions and so far, we are executing on that strategy successfully. Brian Hollenden - Sidoti & Company: Thank you. And just one final question and I will turn the call over. Did you have a general forecast for occupancy by the end of 2014, or just kind of where you see occupancy ticking upward by the end of the year?

I don’t think we give the numbers in advance and there is a good reason for that. We are hoping that the spring selling season comes back to what I’d call normal, which is seven years ago. It hasn’t been that good for seven years. But we are hoping for a resurgence in sales and increased occupancy. The basic point we have made just, we have 2,700 vacant sites, historically have been around a long time. But for decades, the manufactured housing communities were full. And the situation where you have 70% occupancy or 65% occupancy is unusual. There has always been a shortage of affordable housing, even in the poor cycles. So this is an unusual cycle. It’s longer and deeper. It’s worst and it’s the worst housing cycle I have ever seen and now we think we are going to recover from that and go back to normal, so that we think these products will be better. If you get to 2,700 sites occupied on the topline, you're going to pick up $10 million and we don't think that’s out of the ballpark projection. We think that eventually these products will be full again.

If I could just add a couple things to that, same store occupancy was up 80 units for the year and the purpose of these increased expenses we made during the past year are to bring new communities up to the standards that people will want to occupy them. There is a particular acquisition we are working on right now. We are right next to the acquisition of building a 300 space apartment complex, yet the acquisition sitting with only about 60% occupancy and the owners doesn’t really understand why. Well, people are not moving into a place that is 10 years of deferred maintenance. So when we acquire it, we're going to make that -- we are going to repair that deferred maintenance right away, that’s the expense. One of our expenses in the past year was $77,000 for security to enforce rules and regulations because sometimes it's not so easy to take a community that’s become rundown and upgraded. But when we do that, what we've seen at UMH is 22 of our communities grew revenue over 6%, seven communities grew revenue 10% or more and five communities grew revenue over 15%, so our formula works. We know that that when you get the community to the right quality, they will operate at a 40% to 50% expense ratio year after year. But the first thing to do is put them in a quality that people want to buy homes and rent homes and that’s where it will increase the occupancy. Brian Hollenden - Sidoti & Company: Thank you very much. I appreciate it.

The next question is from Bruce Winter, a Private Investor. Please go ahead.

Yeah. Thank you. Could you please discuss your financing options for your growth strategy of about $100 million of acquisitions, new sales center openings, fixing the deferred maintenance? I know you have a dividend reinvestment program. You get so much that every year out of that. You can leverage that. In some years, you issued common stock, preferred stock and you've also taken money out of your securities portfolio. In some years, you put the money into your securities portfolio. So, how do you see that playing out in the next few years?

I want to take Anna’s turn, but I do want to tell you that the company is very well capitalized. We have on replacement cost, maybe $500 million in products and what do we have in mortgage debt?

We have a 100 -- I'm sorry, we have about $160 million in mortgage debt and about $50 million in loans payable.

We only have $210 million in products there. We have -- today, we have $62 million in securities plus the $18 million loans. We have $44 million, so we are very well capitalized there. We discussed internally if we have to buy 250 homes or what would that be seeing, $10 million?

$10 million.

$10 million, the only decision we want to make is someone says, we can finance it with a certain company where we can try to do it on a capital. And today, we were doing it on our capital but consistent without, borrowing the $10 million on the homes we want to buy. So we are very fortunate that we have a strong balance sheet. Sam was talking about the previous owners -- in defense of the previous owners of these products, they couldn’t do what we want to do. They didn't have the money to put a $1 million for the homes and they don't have the $1 million to fix up the product. And in this mortgage market, they were not able to finance it, as we could buy the products from existing owners and make these investments.

I know you have a strong balance sheet and it’s no problem. I’m just wondering are you going to issue common stock, preferred stock, are you going to borrow the money and how much a year to get out of your dividend reinvestment program?

Anna has that, $35 million…

$35 million out of the dividend reinvestment and shareholder investment program.

…which is more than enough. We had raised a lot of money because we did those wonderful acquisitions. We did $69 million. In the portfolio, we did hundreds of million in acquisitions. Even though we still think we could make acquisitions, we do recognize that the pace of the acquisition is slowing down. And so we assume that if we finance $50 million in acquisitions, there will be $30 million, $35 million in debt on loans and then we would need $10 million or $15 million, which is -- we are a small company, that’s a respectable amount of money. But we can raise that amount of money. So we will continue to use the dividend reinvestment shareholder investment plan. But we've cut it back recently and we are thinking about cutting it back even more because if we need $10 million, $15 million, that’s what we are going to raise. We are not going to raise $35 million and we are going to continue to look at other sources to borrow money. We really want to get a -- continue with a strong balance sheet, improve our income statement and then, we will be able to borrow $100 million.

I did want to add one thing. We did this year in 2000 as well as this year. In 2013, we’ve entered into a new credit facility which was $35 million, which can be increased to $50 million with an accordion feature. Right now, we have $20 million outstanding. But we will be borrowing an additional $10 million for our acquisitions.

In 2013, how much did you get in cash on your cash flow statement from issuing stock through your DRIP?

Approximately $35 million.

$35 million.

And you are going to cut it back this year?

Yes.

Okay. And my last question is…

When I say yes, as we say, we think things can change if someone gets me a $100 million acquisition of products, I’ll change my mind and raise more money. But at the present pace of buying communities, I think we are raising more money than we need.

Okay. Good. And my final question is, why did you start doing conference calls and ramp up your growth strategy? For years, you’ve been a regular filing and kind of slow-growing and then all of a sudden, you blossomed into whatever you are?

I think we want to answer that question. Back in the early 2000s, we actually had directors and people say to us, why aren’t we growing, why aren’t we doing anything? And my father with his experience and knowledge said, it’ not the time. The prices are right now, it’s not the time to grow and I got to sit here and watch how strategy works and how difficult it is to implement strategy up. We are not doing anything because now it’s not the time. Well, in manufactured housing, there has never been a better time to make acquisitions. This is an industry with a 10-year recession and everything points to the need for affordable housing is greater than ever. We were subject to the problem of the finance was, make it difficult to sell homes but they are being amended. But as the deployment growth at this Marcellus Shale area increases job, these communities should go back to what they were. And one of interesting things about that, if these communities we are purchasing were 100% owned in the 70s, when the population was much less than it is today. So for a 100% full in the 70s, shouldn’t we be able to fill them today with greater population and we will be able to, as jobs and everything increase. Our capital structure is designed and this is really, really the most important thing I am going to tell you today. It’s designed to make a lot of money for shareholders. It’s the public storage model that we issued the preferred and borrowed money to make acquisitions. We’re sitting with $600 million in assets and only 20 million shares. If the assets go up in value 4%, it’s $24 million, it’s more than $1 per share. So if you want to say the expenses were high in the earnings, we don’t know where they should be. Well, if those expenses had a purpose and the purpose is to add value to the properties, and if the expenses added 4% to the value of the properties, that’s $1 per share. And I feel pretty strongly that the first year maybe people can’t see the $24 million, in the second year maybe they don’t see the $48 million, but at some point it can’t hide that this capital structure worked and we greatly increased the value per share.

Sounds good. I am betting on your future. Best of luck. Thank you very much.

Thank you.

Our next question is from Rick Murray at Midwest Advisors. Please go ahead.

Good morning, everyone. My question relates to your commentary that the portfolio has $500 million replacement costs. Clearly that is a substantial premium to your stock price. So what I’m trying to reconcile is, why you would continue to use your stock as a source of capital, given that you’re selling cheap and buying assets at higher prices? And how do you rectify the gap between the intrinsic value of the portfolio versus where your stock trades?

Usually, I don’t make the statement. That’s a good question. It’s a good question because it is something we’ve really considered. We think the stock is worth a lot more than we’re selling the stock. So that one seemed to be a dilutive effect, but we have no choice in my opinion. UMH is probably the smallest publicly-owned REIT, with only a market cap of about $200 million. We are rather insufficient not that we don’t run, we run a public company that’s cheaper, cheaper than anyone. I gave a great deal of credit to everyone who works here, they do a tremendous job and we run a company, we ran it for $3.5 million, $4 million, we want to get to $6 million. I defy anyone to show any one of the 135 publicly-owned REITs that run so inexpensively and people with very, very [idea] (ph) you have no idea. We switched over to a new accounting system, what we call a new computer system and people were here night and day, we can’t run in two separate systems at the same time and reconciling them with the same staff as we thought it was a backbreaking job. But going back to the capital thing, you can’t take a short-term view. We would love to sell stock at $14 or $15 a share rather than sell stock at $9 a share, but we think that capital increases the size of the company, the liquidity of the company and gives us the capability to borrow on this line of credit which maybe up to $35 million to $50 million. And so if you just look at issuing the stock, it’s dilutive. If you look at our ability to borrow, Anna bought $50 million or $55 million at 3.5.

Well, the 4.0.

4%. So you have to take a lighter picture, you can’t just say, Jesus, you’re selling the stock too cheap because you needed that capital to take advantage of the opportunity we had, we had a once in a lifetime. As Sam pointed out, it was a once in a lifetime opportunity where people just got tired of owning manufactured home communities because of the recession and that particular industry has lasted so long and it was so difficult that we had the opportunity to step in and buy part before there were nine separate Lloyds institutions buy. When we were the only bidder, we were able to get this buy so, but it’s a good point, it’s a good point and any good management will really think two or three times before issuing stock at this gap, but we take into consideration all the other factors instead of decided to do it.

Okay. So to be clear, as you evaluate potential acquisition opportunities, you’re looking at your blended cost of capital in doing so, is that correct?

The blended cost of capital, the fact that the sampler is out, we think these products are going to rise if demand exceeds supply in the housing business, then the value of the real estate would be rise at least to be placed with gold and that will mean that these are some of the best acquisitions any REIT had ever made.

And now the good time for me to remind everybody about our first of our acquisition program which was whether we had stakes in 2006 that we bought at 20,000 sites and in our first full year, it grows 754,000 with the expenses of 260,000 and made 494,000. Six years later in 2013 the growth doubled to $1,426,000, expenses were $471,000 and we made $955,000. So our game plan works. We’ve done it before and it just doesn’t happen in six months, it takes some time.

Okay. Well, let me come at it a different direction. So why do you feel that your stock continues to languish it such a dramatic discount to the value of the underlying assets in business?

Cleveland now we are running where we should. We may have a book value substantially higher, but the earnings are not commensurate with the value. So we have to fill those 2,700 sites, double it, triple manufactured housing sales and do it at a profit and get to the next cycle, but we spent time with some very nice people in the investment business. We tell them our story and would generally well-received. So we think people understand what we are doing and we think our stock will eventually go to the price that it should be, but it’s not there today. You are talking to someone that who is best than other REITs, you have been on the REIT business, and who really doesn’t believe to me efficient like it vary because for many, many times we have seen that stocks often sale at a price that doesn’t make any sense, but they actually do I mean if we make progress on the earnings frontier, you will see a much higher price for UMH.

We needed more financial public relations and Anna and I are going on the road next week and we are going to continue to increase our financial public relations next year.

Or perhaps you ought to visit with one of these nine institutional organizations that are so aggressively buying manufactured home communities and see if they might pay a premium for a large portfolio?

We are well aware of fiduciary responsibilities and we do talk that to everybody. We know everybody in the industry and we have the burden of talking to them and listening to them and we do think that the industry will consolidate. We think that we know the nine groups. We know others so we think there will be some consolidation in the industry. We are not opposed to it.

All right. Thank you very much. Good luck.

Our next question is from David Minkoff of DCM Asset Management. Please go ahead.

Good morning, gents. It seems to me that the reason stock is where it is, is because the occupancy rate is as low as it is. You compete with apartment rentals, apartment rental industry is booming right now. So something is wrong with your sales process perhaps and one of your competitors that I am sure you know of is -- has occupancy rate of low 90s, 92%. And when they sell 400 homes in the quarter, 200 come from rentals that transfer into ownership. So I think you need to be more aggressive on the rental side that is the quickest way to sell. I know you want to sell your property, but sometimes you’ve got to do with body renting first and get some in the community being comfortable with the community and then they become a buyer. That is the best tools. That’s even better than opening up the sales offices you are talking about. So how many homes did you sell in the quarter or year and how many were from rentals?

Before (indiscernible) let’s say and answer that, but I would like to -- your questions are very good one and we agree with you. We may ask to borrow and rentals where are we watching our competitors very closely and we are well aware that some communities in the U.S. are reporting improved results sooner than UMH reported it. But we think that’s actually good news because maybe we like to hear that things are improving. They have to realize that David you know this that some did 9000 rental units at a cost of $360 million, that’s very substantial investment. And looking back, there was a good move on their part. And we have made nowhere near that type of investment. So I think Sam going to correct, we’re going to increase number of units we ran. We’re going to continue the sales process. So we really think that’s a long-term future of the industry. But we’re not interested to increasing the rental units because the rental market is strong.

So it’s very important, see here is why I don’t like that number, portfolio percentage occupancy. Because if I buy a portfolio, that’s 60% occupied, that reduces my percentage occupancy. If I buy a community with 320 sites and only 160 occupied, it reduces my percentage occupancy. So percentage occupancy can be a misleading number and on top of that vacancies could be a good thing if the market turns around. But let me go a step further. Last year, remember, we jumped 209 homes total, which means I took our 209 old homes and occupancy was still up 56 units, which means we put in 264 new units. We had 100 new home sales and so and we added 200 rental units, which didn’t all rent right away. But we very much embraced the rental program. We very much embraced the idea that rental residents become buyers because it’s their taste of product. So we agree with you 100%. I want to continue to increase rentals and I just had an article published about why rentals work so well because they breakdown the value of the entry for the housing. So we agree with you 100% on the rentals.

Okay. So in the 17 communities that you acquired this year, what was the average occupancy rate on those communities?

It was approximately -- I believe it was approximately 80%, 81%, 82%, pretty much what we ran at that.

I thought your recent acquisitions were up near 90%, may be that was the year before. But since remember one of the presentations that I think the properties acquired were running close to 88% or 90%. Is that not right?

That was 2012, it was approximately 90% occupancy. In 2013, I would say, it’s about 82%, 83% occupancy.

Let me question on the 82% occupancy. When we go in there, it’s 82% occupancy and we take out homes that were there as because they’re not suitable and the occupancy goes down a little bit.

All right. So it seems to be the missing link and it is the rental. To get more aggressive on that, you’d probably doubled your sales. Rent is converted to owners, which is really what you want, but it’s just an interim step to get there, seems to me. And that’s what I would add. I think that’s the problem. When you look at the competitor running a 92% and he is aggressive on the rental side, that’s the missing link between you and he.

We can solve the top line revenue problem and we can get better occupancy by substantially increasing rentals and we’re not opposed to it. But the long-term future of our company is in sales, which depends on the recovery of housing, which depends on a recovery of jobs. And the majority opinion of the economists that we’ve talked to that we read about say that this spring maybe a very good spring, jobs maybe increasing and housing formations may increase and we maybe able to get a turnaround in the sales operations. If we are going to fill the product two different ways that was much preferred by selling homes and renting homes. So we’re trying to do both and we determined to fill the product whichever way we have to, but don’t discount the fact that the housing market can turnaround dramatically this spring. And if it does, you will make jobs to benefit from that.

Our next question is from Paula Poskon with Robert W. Baird. Please go ahead.

Thanks very much. Sam, so just a follow-up on this occupancy discussion, understand your point that if you buy something that is under occupied, it does write-down the portfolio occupancy. But in your prepared remarks, you commented on your same-store occupancy that that didn’t really go up very much either. So can you give us more color on the occupancy trends you're seeing in your same-store pool versus the things that you're buying currently or recent acquisitions?

Sure. Sure. Same-store occupancy was up 80 units for the year. Only two communities have substantial declines in occupancy. One community we owned for one year, Maple Manor will remove 19 homes. We are rapidly putting in new homes that are quickly renting. The second was Port Royal Village where a large group of Marcellus shale workers left before the winter, closing 20 vacant rentals, they are now re-renting quickly. Those people by the way were around two year leases. The two year lease expired, they came vacant and at this moment, most of those are re-rented. When you look at total occupancy including new communities, like I said, that’s only plus 56 units. But the rentals are renting as quickly as we put them in. A very important point, UMH is nearing its 3,000 home sale in our history and the reason that’s important, we leased up our portfolio of 6,000 sites. Most of the homes in our existing communities are really less than 15-years old because we’ve replace the old with new. It’s the new communities that have some of these homes from the 70s, quite a few in some instances, which require this turnaround of removing 200 homes in a year. Basically, when we had 10,000 sites, I said you have 2% of obsolescence. You are going to lose 200 homes a year. Those 200 homes come out, 200 brand new ones come in and this year, it’s 200 plus 50. I have said, the more rentals we buy, the faster we will go. But still like my father said, the housing market really affects us. We know in our 55 and older expansions and we have about three of those going right now. Until people can sell the home, they live in they cannot buy from us. And so we have a number of expansions that were build to have profitable sales that are sitting there with almost no sales.

And just to be specific, the 80 units that you gained in occupancy in the same-store pool, it represents what percentage increase?

So, let’s say, we’re talking about 10,000 sites. So what is that, it’s less than 1%?

Less than 1%.

Less than 1%.

Less than 1%, okay. And at what pace do you expect that to normalize and what occupancy level do you consider to be normalized?

We have to backup on -- I believe that virtually all of our communities have the potential to be 95% occupied, okay. In the North East, you are talking about New Jersey, Eastern Pennsylvania. To the extent we have vacancies, it is three or four lots and it’s for the purpose of having a brand new home for sale. So then you get to the communities that we have with substantial vacancy, which now you’re talking about Ohio and Western Pennsylvania and these are locations that have been economically dead for 10 years. Now this Marcellus shale, those Marcellus shale workers and what’s going on there is very for real. I mean, the employment gains there in the Pittsburgh area and we’re in Cranberry, Pennsylvania. We are right where these things are happening. That’s what leads us to be able to fill rentals as quick as we put them in. It’s a substantial number of vacancies. We have 2,700 lots. But as you see last year, we filled 280 units, the 200 homes we’ve replaced plus same-store up 80. So, we can do better than that, but 300 homes a year is a pretty good number in this economy.

Okay. Thank you. And if your response to the -- I think it was the first question on the operating expenses. I think the detail on what the dollar amounts were and in what category, it would be very helpful if you could provide these?

Sure. Sure. Of our $2.1 million in repair and maintenance, $1 million of that was related to home removal. $350,000 was related to waste removal cost. $77,000 was security and taking a new community and making it, so people could live there and they want to live there. $700,000 was rental home expense related to, when we acquired a community with existing rental units that are older, they may need substantial repair and maintenance. So, $700,000 was that and $300,000 was additional labor related to bringing these new communities up to our standards. And when you're taking a new community, the old operator might have had one person in the office and that person might have been the maintenance manager too. And if we're trying to fill sites, we have to add additional labor that you otherwise wouldn’t need. So, $300,000 of that’s additional labor and that's where my $2 million for it comes to. On top of that and I didn’t count this in the $2 million for. But on top of that, our existing communities primarily have separately metered city water and city sewer. And what that does is in a very cold winter like this winter, people if they run their water to stop their pipes from freezing they have to pay for it. A lot of the newest acquisitions do not have separately metered water and sewer although, we're going to put that in but we don't put it in the day we bought the community and what occurs there -- a, residents may not have purchased heat tape. B, when it’s substantially cold to run the water and sewer, sometimes even if they, but run the water. Sometimes even if they don't -- sometimes even if they do, heat takes up to run the water and this increases your water and sewer cost dramatically in the cold winter. When we get them separately metered, that will be their request not ours but that also had effect on the operating expenses in the fourth quarter.

That's very helpful. And then just to be clear, the other costs that you mentioned, the pension accounting accrual, I think it was -- that was I assume booked in G&A?

Yes, it was.

Okay. And then the third category, I'm sorry was all the software system. I assume that that was also in G&A, or did you allocate some portion of that to the properties and secondly did you share any of that with your sister organization within your share resources?

No, this is a new system that we put in. It was -- the system itself of course is capitalized. However, they were additional expenses associated with bringing the system online. For instance, as Gene had already mentioned, we had to run parallel for quarter and to run parallel, we did hire quite a number of temporary help. We’ve also had to do a lot of training and that entailed traveling to all of the communities and all of that was in G&A this quarter.

Okay. That's very helpful Anna. Thank you.

Thank you, Paula.

And then just finally on the acquisition front, I just want to make sure I got this correctly in the discussion of the previous Q&A. You see the -- the pace of the acquisition flow decelerating and therefore, you think your DRIP issuance and SIP issuance will also decelerate through the year?

We've cut it back and we're considering kind of get back further. Right now, we have announced that we have contracts and --

We have a total of about $37 million.

37 million is we've announced but will probably take $15 million and we've been raising capital in advance of that. So we have sufficient capital. I can’t tell you what the acquisition portfolio is going to be. We have offered deals repeatedly and we look at two, three deals a week. So it's very difficult to say that it's going to be cut back and that depends what we're seeing and what's available. But knowing the competition, I don't think 100 million over the next two years is feasible but they are not a $100 million a year. I don't see that but that's not a number that I can be precise on because you don't know that you have somebody you talk two-three years ago, come back to you.

Understood. I understand. And, Anna, is the previously disclosed $25 million acquisition for the thousands sites in Ohio, is that part of the $37 million or is the $37 million incremental?

That is part of the $37 million and it’s going along fine. It’s just -- sometimes, we underestimate the time it takes to close.

Okay. Thank you very much. That's all I have.

Great. Thank you, Paula.

Our next question is from Michael G. Boulegeris of Boulegeris Investments, Inc. Please go ahead.

Good morning. And thank you for taking my questions.

Hi, Michael.

Thank you, Michael.

You indicated in your release that the expenses will decrease in the upcoming quarter as you did in the previous release. Can you quantify that somewhat for us or give us some guidance that might be helpful?

Well, I can on the operating of the communities we already closed on, okay?

Right.

I believe that they have $2.4 million in expenses that will not reoccur in the following year. Now as I say that to you, I'm very aware that we're going to close on communities that need additional work, so that I won't be re-spending the $2.4 million I spent last year on the same communities I own.

I understand.

But the portfolio we're purchasing is going to run at a higher expense ratio than what's normal because normal is 40% to 50% and we're going to be above that, not on every community we are purchasing but on some of the communities we are purchasing.

Okay. Well, it's certainly impressive that you are making and following through on these investments in your acquisitions and executing on upgrading those to your high standards. Maybe since we have our Chairman on the phone, may be Eugene can speak to the dividend during this period of growth. Do you feel that -- are you confident that dividend rate might be maintained during this period of growth, or should we be a little more cautious with these capital investments that you're making.

I have to say that again, but everyone who is listening this conference call know that management is very optimistic and at our next Board Meeting we're going to make a optimistic presentation to the Board of Directors. But it’s the Board of Directors that votes for dividend and they will vote the dividend based on the situation at the time the dividend comes up. But Sam and I are going to recommend he Board that we continue the dividend because we think that the earnings are going to improve and it doesn't makes sense to us to reduce the dividend because we are not covering the dividend at the current time with the current earnings when we think that in the near future we will cover it. So we had a dividend policy, I don't know how many years we paid dividends, it's a long, long time. UMH is very proud of its dividend record and we saw we only earned $0.61 last year and we've paid $0.72 and there is the shortfall. And if the shortfall was permanent, then I would have no hesitancy in recommending the Board that we cut the dividend. But at the present time, looking at all the factors, I will recommend to the Board we continue with dividends. Now they may or may not take that recommendation because as I said we’re not covering the dividend at the present time, but I'm hopeful they will take the recommendation and then we will continue the dividends. I'm hopeful between now and the Board Meeting that we're going to get some good news on the economy that housing will pick up and that employment will pick up. So we are watching that closely. But you have a company here that has a tremendous future and certainly has the capability of increasing earnings and leading this $0.72 threshold.

Well, thank you for that color, and certainly it's appreciated that you continue to make those aggressive investments in upgrading the communities and as you execute your growth plan. So thank you for taking my questions.

Thank you, Mike.

Thank you, Mike.

And this concludes our question-and-answer session. I'd 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 and I are available for any follow-up questions. We look forward to reporting back to you after our first quarter.

The conference is now concluded. Thank you for attending today's presentation. The conference replay will be available in approximately one hour. To access this replay please dial U.S. toll free 1-877-344-7529 or international 1-412-317-0088, the conference ID number is 10039185. Thank you and please disconnect your lines.