Good morning, and welcome to UMH Properties, Inc. Second Quarter 2018 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. It is now my pleasure to introduce your host, Ms. Nelli Madden, Director of Investor Relations. Thank you. Ms. Madden, you may begin.

Thank you very much, operator. In addition to the 10-Q that we filed with the SEC yesterday, we have filed an unaudited second quarter supplemental information presentation. The supplemental information presentation along with our 10-Q are available on the company's website at umh.reit. I would like to remind everyone that certain statements made during this conference call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements 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 it's expectations will be achieved. The risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's second quarter 2018 earnings release and filings with the Securities and Exchange Commission. The company disclaims any obligation to update its forward-looking statements. In addition, during today's call, we will be discussing non-GAAP financial metrics. Reconciliations of these non-GAAP financial metrics to the comparable GAAP financial metrics as well as explanatory and cautioning language are included in our earnings release, our supplemental information and our historical SEC filings. Having said that, I would like to introduce management with us today: Eugene Landy, Chairman; Samuel Landy, President and Chief Executive Officer; Anna Chew, Vice President and Chief Financial Officer; and Brett Taft, Vice President. It is now my pleasure to turn the call over to UMH's President and Chief Executive Officer, Samuel Landy.

Thank you very much, Nelly. Good morning, everyone, and thank you for joining us. We're pleased to report our second quarter results. Our business plan of acquiring value-add communities and turning them around has worked exceptionally well. Not only have we improved our operating results, but we have also enhanced the quality and reputation of our communities. Most of the physical work has been completed at these locations, and we are now seeing the benefits of our strategy. Year-over-year, 58 communities have increased revenue by 5% or more, of which, 34 communities have increased revenue by 10% or more, and 20 communities have increased revenue by 15% or more. We're very proud of the work that our team has done in integrating, modernizing, expanding and upgrading each community. The value of our portfolio continues to increase substantially. During the quarter, we closed on the acquisition of 2 all-age communities located in Indiana, for a total purchase price of $20.5 million. These communities contain 669 developed homesites, of which, 91% are currently occupied. These communities are high-quality stabilized assets with additional land for expansion and below-market rents. This acquisition closed on May 30, and therefore, the positive impact on our earnings is not fully represented in this quarter's results. Our acquisition pipeline, currently consists of 6 properties containing 2,100 sites, with a blended occupancy rate of 66% for a total of $81.5 million. We are satisfied with our ability to source deals in a competitive acquisition environment. We continue to evaluate all potential opportunities and hope to further grow our acquisition pipeline. Rental and related income for the quarter was $28.2 million as compared to $25.3 million a year ago, representing an increase of 11.6%. Community NOI for the quarter was $15.5 million as compared to $13.4 million a year ago,…

Thank you, Sam. Core funds from operations or core FFO was $6.2 million or $0.16 per diluted share for the second quarter of 2018 compared to $6.5 million or $0.20 per diluted share for the prior year period. During the recent quarter, core FFO included a nonrecurring onetime payroll expenditure of $525,000. Also, during the prior year period, core FFO included realized gains on the sale of marketable securities of $1 million. Normalized FFO, which excludes these nonrecurring items, was $6.7 million or $0.18 per diluted share for the second quarter of 2018 compared to $5.5 million or $0.17 per diluted share for the prior year period, representing an increase of 5.9% on a per share basis. During the first quarter, we issued 2 million shares of a new 6.375% Series D Cumulative Redeemable Preferred Stock for net proceeds after deducting the underwriting discount and other estimated offerings expenses of approximately $48 million. We anticipate continued per share earnings accretion once this capital is fully deployed. Rental and related income for the quarter was $28.2 million compared to $25.3 million a year ago, representing an increase of 11.6% primarily due to community acquisitions, the addition of rental homes, the growth in occupancy and rent increases to our residents. We have been raising rental rates by approximately 3% to 5% at most communities. Our same property weighted average monthly site rent is currently $444, representing an increase of 3.5% from a year ago. Due to the adoption of a new accounting pronouncement effective January 1, 2018, our current earnings include the change in the fair value of our marketable securities. These changes were previously a component of other comprehensive income on our balance sheet. By now, running these changes, through our income statement, this new accounting standard causes volatility to our…

Thank you, Anna. UMH is well on its way to an excellent year. We've delivered solid financial results, increasing our rental income by 12% and our community NOI by 16% year-over-year. Since 2010, we have tripled the size of our portfolio from 6,800 developed homesites to 20,600 developed homesites today. Our recently acquired communities are performing well, and we have a strong pipeline of future acquisitions. The success of our rental home program has helped to increase our occupancy. We are on target to add an additional 800 rental homes this year. Sales have increased 10% this quarter and 17% year-to-date. The U.S. economy is in excellent shape, with GDP growth for the second quarter of this year at an annualized rate of 4.1%. This is the strongest performance in 4 years. The unemployment rate is at a near record low of 4%. Wages and salaries were up 2.8% in the 12 months through June, the largest gain since the third quarter of 2008. Housing demand appears to be increasing nationwide in all areas. Home prices are up over 6% on a national level. Demand for our homes also continues to rise. Factories are reporting longer lead times. It now takes 6 to 8 weeks to buy and receive a home from the factory to our site. These factories bode well for a healthy U.S. economic outlook. UMH is optimistic as to the future prospects of housing, affordable housing and manufactured homes. We will now be happy to take questions.

[Operator Instructions]. And the first question will come from Rob Stevenson of Janney.

Sam, how much -- is the increase in occupancy 100% due to the rental units? Or are you still seeing some organic move in of the typical pre-rental business occupancy?

There is a very small number of outside dealers sales coming into the communities. We've seen it in Western New York, but it's the first time we've seen it in a long time so that's were very encouraging that manufactured home dealers are selling houses, and bringing them into our communities. It's only on a very small scale, but at least it's occurring. And then the other occupancy increase comes from our own sales as well as the rental units.

Okay. And then, in terms of the rental units, is there any markets or properties, where that there is some sort of lag either in terms of you being able to get the rental -- there is excess demand and that if you had 5 more rental units you could lease them? But getting the -- as you talked about getting delivery of the units on to your site and setup and everything is a drag? Or is it basically what you guys are doing is what the demand is in your assets?

Predominantly what we do is with the demand, but at the same time, I say that most communities have a waiting list, and they're waiting for us to set up the next batch of rental units, which whether it was bad weather earlier in the year, the longer period of time it takes the factory, the lack of setup crews, but we're on target to do 800 units, and there is certainly the possibility we could go a little faster, because there are waiting lists.

Okay. And then, in addition, to the site that you acquired during the quarter, you talked about in the release, the $81.5 million pipeline, what's the expectations in terms of closing on that? Is that all likely to be -- if it closes, is going to be in '18 or is some of that likely to stretch into '19?

And Brett will answer that. Go on.

Yes. So some of it's definitely going to stretch into '19. Assuming all goes as planned in Q4, we should close about $33 million, and the first half of next year will be the remaining $48.5 million.

[Operator Instructions]. The next question will be from Craig Kucera of B. Riley FBR.

Wanted to circle to the payroll expense, what was that onetime payroll expense affiliated with?

Craig, this is Anna. That was a bonus that Sam and I receive. It was -- I'll call it a lifetime achievement bonus, but that was a onetime payroll expense for that quarter.

Okay. Got it. I wanted to go further into operating expenses. You go back a couple of quarters, they were low double digits, and it really improved the last couple of quarters. Were there any components that were negative or even flat in the quarter?

I think, in the -- for the most part, it was operating the way we expected to operate. Of course in Q1, we had the expenses of the winter, which increased our utilities, but -- and in Q2, we did have an increase in water and sewer, but that was expected, water and sewer always goes up especially with the municipalities.

Yes. I'll just add that the acquisitions acquired 2 and 3 years ago, we've completed most of the work, so a lot of those is onetime or the expenses are no longer happening.

Got it so just more of a normalization. And I feel like late last year, you had a pretty healthy increase in some of your property taxes. Have you had any success in maybe trying to fight back against those this year?

We have had some success. I am not going to say, it's a lot of success, because again, with the municipalities what happens is when you purchase -- when you acquire a community, they really reassess your -- they really take a good look at your taxes and reassess us, but we've had some movement on that.

Okay. Looks like your average sales price on homes were up quite nicely, maybe up 18% from the first quarter and 10% from last year and your margins were better than we were looking for. Was that a mix issue, or are you able to push pricing higher this quarter?

It's a combination of everything. Sales are definitely improving and we're doing more of the 55 and-older cash sales, which are -- those are higher end homes closer to $100,000. And we just see sales continuing to progress. And everybody out there, our activity and the number of people coming on our website, visiting the communities, all of that is higher than ever.

Okay. Great. And just going back to the commentary on rolling out some differential water metering? Can you tell us again what you're expecting to do this next quarter, and -- or in the back half of the year and kind of what your expectations are for that? And sort of what you see is the economic impact as you roll that program out to more communities?

Sure. It'll take more time, but what happens is once you separately meter the water and sewer, residents reduce their consumption 20% to 30%. Once they're directly paying that bill, it decreases the water and sewer expense. We separately bill them so it's actually their savings, but we see that as a benefit to the community. We see reducing our resident housing cost as our job, and we're trying to make manufactured home and manufactured home communities more affordable. Besides working on the utility cost, which is one area where we can reduce residents's expense. We also believe that financing homes in UMH communities should be a very successful venture for whoever the lender is. Our communities are going to go up in value, the homes in the communities are going to go up in value, so we believe that the residents of UMH communities are entitled to lower interest rate on their home loans whether it's a new home sale or a used home sale. And so for the next year, besides working to reduce their utility costs, we're going to try to reduce the interest expenditure that our residents have.

Got it. And one more for me. Just going to the acquisition pipeline, it seems to be taking a little bit longer than to close than maybe it has in prior years, and I guess are there any special considerations for why this is [indiscernible] taking longer than maybe it has in the past, or is it just -- these are deals that need more diligence?

Loan assumption are predominantly the issue. The -- sometimes, they take 3 months, sometimes they take 6 months. We are moving forward on them. We do expect Q4 to close on about $33 million and Q2 '19 or first half of '19, $48.5 million. The deal we recently closed, we did place some mortgage on it. Subsequent, we're hoping to do it at the same time, and that slightly delayed the acquisition.

The next question will be from Tayo Okusanya of Jefferies.

I just wanted to ask a quick question about the REIT securities portfolio, kind of real big change there in the quarter. Just curious was that just a provision that bounced back? Are you kind of thinking about what you invested in differently within the portfolio?

Well, this is Gene Landy, Chairman. The securities portfolio we basically long-term invest, and so we -- the market is fluctuating greatly. REIT stocks have good quarters, bad quarters. We view investing in REIT securities the same as investing in real estate. We take a long-term view of it, and we follow all the companies we invest in closely. And the United States is doing well, and real estate in the United States is doing well. So we plan to continue the portfolio, and we monitor it, but we think in the long line, it'll do very, very well.

Right. But there was no real change in strategy that kind of creative the reversal during the quarter, it's kind of still?

We have a lot of strategies that we've had them for many years, and they've worked out very well, but it's very hard to cover that on our earnings call. But we follow various industries in the REIT field region. We have various leaders in the REIT filed that we think highly of, and that's the message to every portfolio stock we have. But it doesn't change quarter-to-quarter or even year-to-year, and we continue the holdings that we have, and it's been a long-term winner, and we think it will continue to be.

And we have announced supplement, our dividend income and our realized gains over the last -- since 2010, and you can see how well we've done there. And our methodology has remained relatively consistent.

[Operator Instructions]. And at this time, we will conclude the question-and-answer session. I would like to hand the conference back over to Samuel Landy for any closing remarks.

Thank you, Operator. On a sad note, I would like to take a moment to acknowledge the passing of one of our strongest supporters, Mike [indiscernible]. Michael was an inspiration to all of us. He will be greatly missed. Our thoughts are with this family during this difficult time. I would like to thank the participants on this call for their continued support and interest in our company. As always, Gene, Anna and I are available for any follow-up questions. We look forward to reporting back to you after our third quarter. Thank you.