Good morning and welcome to UMH Properties First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, today's event is being recorded. It's 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-K that we filed with the SEC yesterday, we have filed an unaudited first 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 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 first quarter 2019 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, Nelli. We are pleased to report our results for the first quarter ended March 31, 2019. Following eight consecutive years of delivering double-digit growth rental and related income for the quarter increased 12% over 2018. Sales increased 44 % for the quarter. Community NOI increased 9%. Demand for both sales and rentals of our homes remains robust. Normalized FFO per diluted share for the first quarter of 2019 was $0.17 as compared to $0.18 in 2018. This decline was primarily due to a reduction in dividend income from our securities portfolio. Our same-property results continued to demonstrate the strength of our business plan. During the quarter, same property NOI increased 4.7% driven primarily by occupancy gains as same-property occupancy improved to 83.1% this quarter from 81.9% in the prior year period. Our average site rental rate as of the end of the first quarter is $447 as compared to $434 last year representing an increase of 3%. Our average home rental rate for the same period is $753 as compared to $732 last year representing an increase of 2.9%. Our same property expense ratio for the first quarter was 45.5% as compared to 44.5% in 2018. Generally, communities with 90% occupancy or greater can operate at an expense ratio as low as 30% when water and sewer are separately metered and at a 50% expense ratio if they are not separately metered. To the extent our expenses exceed those ratios we are strategically increasing expenses to improve our property operations to generate future revenue and profits. As we invest in our communities, add rental units and sell homes, we will achieve these results. We are particularly encouraged by the strength of our sales operation. Our home sales for the quarter improved by 44% marking the best…

Thank you, Sam. Core funds from operations or core FFO was $6.1 million or $0.16 per diluted share for the first quarter of 2019, compared to $6.4 million or $0.18 per diluted share for the prior year period. Normalized FFO which excludes realized gains on the sale of securities and other non-recurring items was $6.5 million or $0.17 per diluted share for the first quarter of 2019 compared to $6.3 million or $0.18 per diluted share for the prior-year period. Rental and related income for the quarter was $30.6 million compared to $27.3 million a year ago, representing an increase of 12%. This increase was primarily due to community acquisitions, the addition of rental homes and the growth in occupancy. Community NOI increased by 9% for the quarter from $14.5 million in 2018 to $15.9 million in 2019. Our normalized operating expense ratio increased to 48.2% from 46.8%. The increase in expenses can be attributed to seasonal expenses, rental home turnover and the growth of our community level staff. We are investing in our personnel and have increased marketing, sales and community staff as needed to ensure that our frontline has the human resources necessary to handle our growth. We have also paid increase incentives due to the occupancy of an additional 182 sites during the quarter. We expect the expense ratio to decline as new revenue originated during the first quarter offsets the increased expenses. As we turn to our capital structure, at the end of the first quarter, we had approximately $444 million in debt, of which $329 million was community level mortgage debt, and $115 million were loans payable. 76% of our total debt is fixed rates. The weighted average interest rate on our mortgage debt was 4.3% at the end of the first quarter 2019, compared…

Thank you, Anna. Our mission at UMH has always been to provide affordable housing. We are now the seventh largest operator of manufactured housing communities in the country. Our portfolio contains 118 communities with 21,500 developed home sites. We own and operate an irreplaceable portfolio of manufactured housing communities. Our communities and markets that we operate in continue to exhibit strong demand for affordable housing. As a result, our operating metrics are very good. Throughout the years we've invested in various financial instruments including REIT securities in order to provide liquidity for potential acquisitions and generate significant returns when other investment opportunities are not available. Since 2010, we have generated $46.5 million in dividend income and realized gains of $18.7 million. Historically, we've been very satisfied with the performance of our securities portfolio. Over the past 12 months, the marketable have been volatile, resulting in tremendous swings in value of the portfolio. We will not be allocating additional capital for the purchase of securities and may decrease the portfolio as we are able to find investment opportunities in our core business or for other corporate purposes including the potential redemption of our 8 Series B Preferred Stock in 2020. We will now be happy to take your questions.

[Operator Instructions] Our first question comes from Rob Stevenson of Janney. Please go ahead.

Good morning, guys. Sam, you talked early in your comments about the water and sewer metering. How many of your 21,500 sites are not separately metered for water and sewer at this point? And what's the plan for that?

Yes. I don't know. I'm going to ask Gene, if he has the number.

I don't have the number of sites in total that could be metered, but there are certainly still some communities that we are planning on metering. And those will continue having cost savings. So there are still some communities - I think we're planning on metering around eight communities going forward. Some in the Tennessee region which will significantly reduce some of our operating expense ratio.

Yes, so there's more to do but we continue to do them and that is the single biggest variable cost that we can reduce.

Are there areas where you're not permitted to do this?

I think we resolved that situation anywhere we couldn't, where the laws didn't allow us to separately meter, we had that changed and we can now do it, yes, we're okay with that.

Okay and in the assets where you're not currently doing it, are you're doing some sort of rubs the sort of proportional in the monthly site rent or essentially is, if I leave my water running or I take hour-long showers a day is that I don't pay any more than my neighbor that winds up using a lot less.

That's correct. That's why we have to fix the problem. In communities we acquired that we're not separately metered the opportunity to greatly save money by separately metering is there and working on it, yes.

Okay, and then what's the delta between acquiring those two acquisitions you were talking about in the second or third quarter. Is this something where the seller is trying to time something for 10/31? Is this due diligence on your part where you need to see some stuff accomplished before closing? What changes the timing on those deals?

Yes. So this was originally part of it. This is Brett here by the way. This was part of four community portfolio. We closed two of those communities at the end of last year. And we were working with the seller to provide flexibility and that they did need to find 10/31 replacement properties to get this done. So we did our diligence early on in the process that was opened up again recently. We only were able to start the loan assumption process this March, which is why we had the big delay in getting these closed. That being said, we are doing the loan assumptions now. There aren't any outstanding diligence items and it's just completing the loan assumption process. It's hard to put an exact date on when these will close, but it should be the end of the second quarter or third quarter or into the third quarter.

Okay. And then you guys bought 153 rental units in the first quarter which is well off of your trailing 8, 10 quarters. Was there anything that sort of drove that? Was it just timing to be able to get stuff, product and get it set up on the sites, anything to read into that done, which was roughly half of what you guys did in the fourth quarter?

Well, it's winter and that we set up homes in the fourth quarter that we needed to fill in the first quarter. So doing those things, the occupancy gains are on track to again hit 800 units in 2019, 800 new rental units. So yes, it was - looking at the number of homes put in, it appears to be a slow start but we had more units to fill from the fourth quarter.

Okay. When I speak about 2019, I mean 2018 you did a little over 900, 2019 you expect to do at least that amount or possibly more for the full year?

No, I was just going to add to your first question as well, last year in the first quarter we did 165 homes which is below 200 per quarter equals 800, so - we throughout the rest of the year the market should pick up and we should be able to hit those 800, last year you mentioned we did 900, about 100 of those were directly related to acquisitions, so I’d back out those 100 and use the number of 800 for the year in our existing portfolio.

Okay, perfect. And then just last one for me. So given Gene's comments on the securities portfolio, the change in the first quarter was basically all just due to the rebound in stock prices, you guys did not add anything to it in there and won't going forward.

That's correct. We wish we own the securities at current prices which we paid for - with the current price, but we're getting the quarterly reports from the companies and by and large they are in line with our expectations, but we do not plan to add to the portfolio. And we have needs for capital in expansions, in rental units and acquisitions and those add up to about 100 million a year, so there are no plans to expand the securities portfolio and we may even reduce it.

Our next question comes from Jim Lykins of DA Davidson. Please go ahead.

Good morning, everyone. First, another question about the securities portfolio, how should we be thinking about dividend income right now, I know there were some issues with CBL and OPI, could that be lower again in the second quarter or should we start to see dividend income beginning to trend higher?

I think with the higher dividend income with over $10 million and I believe we're down $2.5 million to $3 million and that fact is in all the announced dividend cuts, all the reorganizations and the so-called temporary suspension. So if anything the current run rate may increase slightly because some of portfolio is doing very well and they may increase the dividend. But the since quarter by quarter last year the dividend rate was going up. When we get to the next quarter there'll be the same dividend decline for the year, but it will look, the comparison will be that we will have less dividend income than that quarter.

Jim, since we're not increasing the portfolio we don't make expect dividend income to increase substantially. We were doing a lot - we were at $1.9 million in Q1. We expect that Q2 will be of a similar amount.

Okay. So it's not going to get any worse with what we've seen [all the pain] [ph] that come with CBL and OPI, right?

We believe so.

Okay. Switching gears, you've got a couple acquisitions tee up to close in the second third quarter. Just for modeling purposes, can you give us any sense for when in the second and third quarters you anticipate both of those closing? And also with the proceeds from the preferred, will - I assume roughly $45 million going toward those two acquisitions. I know you've talked about or you mentioned some of it is going to be invested in the core business. So I'm also wondering if maybe some of those proceeds are going to be put aside for potential acquisitions or will that $55 million difference be going toward the core business?

Yes. This is Brett here. So I really can't provide better timing than we already have. Optimistically, I hope they close at the end of the second quarter but it's very possible they do drag on into the third quarter. You mentioned the purchase price of $45 million. There's actually I believe we need cash of about $20 million to get that deal closed. So it's not that we're funding the full purchase price with the new preferred. There are mortgages that are being assumed which are why this process has been slow. That being said, we don't have these two new properties. There are two more properties that are going to be in our pipeline. They're not under contract at the moment, but we do have an executed LOI by both parties. We're working towards contract now and they should be under contract in the next few weeks. Because they're not under contract, I don't want to get into too much detail, but it's two properties in the Pittsburgh market about 285 site priced between $11 million and $12 million. No debt in place currently.

And Sam here, just on the capital needs from the preferred. We're going to purchase at least $32 million of rental homes on our sales. We financed 50% of the sale, so that could be as much as $10 million. Our expansions, building of those expansions is going to need at least $30 million and our capital improvements are about $15 million. So that's $87 million right there.

Okay. And one last one from me. G&A was down about $0.5 million sequentially, any color on how we should be thinking about that for the rest of 2019, how is that trending so far into Q2?

I think Q1 was a little light on it, I think going forward it will increase a little bit, we had some decrease in some payroll expenses but I think going forward it will increase a little bit. I think it may go to approximately the same as in 2018.

Our next question comes from Merrill Ross of Boenning. Please go ahead.

Thank you and good morning. You mentioned for the second time, Gene, the GSE shadow loan program. And I'm curious, if you think that will reduce the number of rentals. In other words will it be affordable enough that tenants would rather buy then rent and if that would have an impact on your rental program?

It was working fantastically well for us, if everybody out in the field is trained to identify the customer's need and if the customer is staying three years or less, we recommend renting. Even though they're going to get a 4% rent increase every year, they're going to save money; they're going to have their flexibility. They don't have to tie up their capital. They don't have to deal with the difficulties of reselling a home. So when we identify a person as a person staying three years or less that's a renter and there's incredible demand for those will keep the rental units we have, will add 800 rental units a year. If we identify a person who is looking for a place to live for more than three years, that's a buyer and improvement in the finance interest rates for purchase of manufactured homes will make buying more available to a greater number of people. The single biggest hurdles in buying does a person have 10% down and do they qualify for the loan, so reducing the interest rates creates more of qualification as does rising employment of rising income, so our sales growth which has been phenomenal is continuing to accelerate.

And when you look at the 66 homes sold, are they concentrated in a particular region or are it more uniform and do you think that the buyers are primarily older folks that are looking to downsize or employees moving in.

Well, our cash sales were $1, 84,000 versus $633,000 a year ago, which would indicate that the 55 and older sales grew about $400,000 because they're generally the cash buyers. And our total sales went from - well, our finance sales went from a $1.7 million to $2.5 million indicating the workforce home sales grew even more. But they're both growing very well and an interesting thing and only an hour and a half from New York City is Montezuma, New York where they built the casino and the water park, and our expansion wound up 100% occupied. So that New York had 7$37,000 in sales which is just great for New York and the growth in our sales from a year ago was phenomenal. Tennessee remains very strong with 44% sales increase - 45% sales increase. So the workforce housing end is going exactly like we projected purchasing in Indiana with Elkhart where when we bought the community there was 22% unemployment, and now less than 4% unemployment. We're obtaining sales growth in pretty much all regions with New Jersey being the only real exception. And I assume that's because of a lack of sites on which to sell homes and we're working on preparing lots right now to increase our sales there.

And our next question comes from Craig Kucera of B. Riley FBR. Please go ahead.

Thanks. I want to circle back to the commentary on the acquisitions you haven't announced. Were those $11 million to $12 million each or in total?

Total.

Okay, great. When I look at your 28 acquisitions kind of backing them out relative to same store, it looks like they're actually losing; they actually lost about $300,000 in NOI here in the first quarter. Sam based on your commentary are you - you do expect those to be generating positive results for the year or sort of as we move through the year they'll eventually be at least break even a modestly positive.

I'll turn it over to Brett, a second. Go ahead.

Yes. Yes, so you're talking about the 2018 acquisitions and they are in better condition and they more - are more stabilized properties, but with any acquisition there are improvements that we like to immediately make. Some of that is waste removal, home removal, some of that is evicting tenants that aren't paying the rent unfortunately. And most of these communities were actually closed in the third and fourth quarters of last year. So we're still in that initial turnaround phase. I fully expect those to meet our expectation in 2019. They should revert back to where they were at least acquire that and then start to provide meaningful growth going forward, but demand remains very, very strong at those properties and we are feeling excited or so.

I want to encourage everyone to go to our website, we put on our website, the drone videos of our communities and these drone videos of the communities show really lovely communities, and it's our policy to upgrade the communities and the value of our company depends on the value of our products and when we make these acquisitions, we budget into them that there's going to be substantial amount spent, some are capitalized, some are expense and it takes three years to turn them around to get them to where we want them, but we're very proud of our acquisition program. We've bought these products for substantial discounts from the current value and they're all making excellent progress.

Got it. So I mean they are 79% occupied, I guess what you're saying is that it's going to be a little bit more on the expense side and that sort of gradually burning off because I think your same store is actually not too much higher than this, it's really just kind of cleaning it up and then maybe seeing a little bit improvement and occupancy in rent?

Correct.

Yes, and it's the winter season as well, so we can't hit the ground running as hard as we could if we acquire these in the spring, obviously. So we're starting to get homes coming in now, we should start to see improvements in occupancy and a reduction in expenses related to the seasonal expenses so.

Okay. And as far as the preferred that you recently raised, I understand that you have overall core business needs, all the various expansions and adding rental homes and what not, but I guess sort of what is the immediate use, I mean are you going to use that to pay down the line or is that just going to sit as cash effectively and then be invested into the business over time. Or how should we think about that?

Immediately what we did or what will continue to do is pay down the lines as well as the floor plan lines. That way when we have the need including the purchase of rental homes, including the acquisition, we are able to take down the line again. So we don't like to sit with the lot of cash on hand. We are able to borrow it on our line. So we are able to at least earn some funds as we use the cash. We always say that you have to raise money when you can because when you need it, you may not be able to raise it. So that's the reason why we raised the preferred at this time.

The overall cost, the spread between the cost of fund and why you paid off should result, if we didn't deploy the money and only paid down the loan to total cost would be $3 million. But obviously we're going to put that money to work. But just reducing those lines of credit at this point of view stayed exactly where you were for 12 months. The total cost would be about $3 million.

We have a very strong balance sheet now. I'm observing other REIT deleveraging one particular REIT de-leveraged by a $1 billion, reduce their income net $50 billion, did it on purpose, just for the purpose of deleveraging, another one de-leveraged by a $1.9 billion was $75 million $80 million and companies are more valuable, the safer they are in real estate sometimes a $1 million worth of income is worth $10 million and sometimes worth $20 million. The trend seems to be that the value of the company the safer the stronger bulwarks you have, the more the public value our company. So we've - we've paid off almost all of that. We have unused bank lines. We have mortgage capabilities that are tremendous. In fact, what we like about the preferred stock is somewhere down the road, we're going to go to the government sponsored entities and refinance a lot of our communities. So we will have tremendous borrowing power, so we're trying to create financial strength and stability in the company, and the preferred was an amazing job on the part of our staff and our attorneys and the investment bankers. It was done very quickly with top institutions in the country. And we're very proud that we could raise a $100 million so quickly from so many good institutions.

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 and I are available for any follow up questions. We hope to see you at NAREIT three week events in June and we look forward to reporting back to you after our second quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.