Samuel Landy: If you take each of our annual reports they show you the occupancy at each community at the end of every year. And if you compare them you’ll find out how much occupancy grows at each community and it’s substantial. But what happens is we acquire communities 30% occupied, 50% occupied, 60% occupied which they get moved into the same-store bucket so that same-store occupancy is in that 86% area. But we consider that 86% area ideal because that’s what allows us to continue to add 1,000 rental homes per year. If we run out of vacant sites there goes that whole world of growth. So at this moment, if you look forward three years, can we raise the rents 5% a year for three years? The answer is yes, and that’s $10 million a year.
For three years that’s $30 million. Can we add 3,000 rental homes without building a single another lot or doing an acquisition? And the answer is yes, because we have 3,000 vacant sites today and that’s $36 million in new revenue. And then what you got to consider because those 3,000 lots already exist, the only capital investment you need is the homes. So 3,000 new homes times approximately $70,000 per house and with that investment we’re going to be grossing an additional $66 million per year. And these communities are going to be closer to 90% occupied, so they’re going to be closer to that 30% expense ratio with more of that money making it to the bottom line. Now we’ll continue to do acquisitions of communities with vacancies, so we continue to grow from the future for that.
And we continue to take that valuable vacant land we have and seek approval, so we can continue to expand that way. So there will be some costs involved in future growth and actions for future growth. But three years from today, you will have increased the rents $30 million on rent increases and $36 million from new rentals.
Eugene Landy: The nation must build new manufactured housing. The parks are filling up. Our parks are filling up and we will go to 95%, 96% occupancy at some point. And if you’re going to sell 100,000 homes in the nation at that point, you’re going to have to build 100,000 more communities. And at 200 spaces, that’s 500 parks that we have to build each year for the next decade. And that’s something which we must do as part of our mission statement and we must do it because the demand is there. The shortage of housing is there and it’s not so easy to get the approvals and to build those communities. And it takes long-term patient money but that’s part of our mission statement. And UMH is going to continue what we call greenfield development. And we’re doing that with a joint venture with Nuveen and that’s in our long-term plan.
Samuel Landy: And those numbers you use that’s for the industry.
Eugene Landy: The industry
Brett Taft: For UMH
Eugene Landy: We do 1,000 homes a year both – of everything, rental homes and filling up vacant sites in the communities we board and expansions and greenfield development, 1,000 homes a year. And the cost of that is probably $250 million on a replacement cost.
Brett Taft: And just to add to that, almost all of our communities will be in our same-property pool this year. And we always analyze the progress we made last year, looking at overall gains in occupancy through both sales and rentals, analyze our vacant sites, make sure we’re ordering homes for the right communities at the right price. And in working with our Vice President of Rentals and our other Vice Presidents, we feel very confident that we can achieve a similar amount of homes as last year. I mean 1,040 was quite a bit but we’re very confident in that 800 new rental home number.
Anna Chew: And as Brett had said, in 2024, our same-property pool will include the 2022 acquisitions. And that was – they were big acquisitions then. It was 1,500 sites almost with a vacancy factor or occupancy factor at the time of purchase of 66%. So we will have room to grow, and that’s what we need, room to grow, and we are doing it.
John Massocca: Okay. Just understanding that, right. So the occupancy goes closer, the same store occupancy for next year goes probably closer to that 86% and change percent level. I mean, is there the opportunity set then in 2024 to have another 200 basis points of occupancy growth, or is either something related to the individual?
Samuel Landy: My giant point is don’t worry about that same store occupancy number. Worry about whether or not the occupancy is increasing at each community, and you could see that by looking at each year’s annual report, and we look at that constantly, and it is growing, and the fact that our expense ratio has now dropped from about 42% to 40%?
Eugene Landy: Same property, yes. Overall, it was 44.4 to 42.9.
Samuel Landy: Okay. And that indicates that we’re filling the communities, because the higher the individual community’s occupancy goes, the lower the expense ratio goes at each individual community, and the fact that that’s declining means we’re filling sites in communities.
John Massocca: Okay. And maybe in that same vein same store community operating expense was basically kind of flat on a year-over-year basis in 4Q 2023. Is that kind of seasonal or an anomaly, or is that something that’s maybe sustainable as you look out into 2024?
Samuel Landy: Well, go ahead. But what happens is, as the community is 80% occupied and goes to 100, we don’t have to cut the grass on vacant rental homes. You don’t need an additional manager. Most of your expenses are fixed, and so filling those vacant lots reduces the expense ratio. Go ahead, Brett.
Brett Taft: Yeah, absolutely right on the expense ratio. As per the exact dollar amount and the percentage increase, I do not expect expenses to be flat next year. I would expect an increase in the 4% to 7% range, depending on exactly what the cost of materials and labor does. We were very happy with 4.2% this year. We think it’s possible that it’s in that 4% range, but it could be slightly higher than that.
John Massocca: Okay. That’s very helpful. I appreciate all the color. Go ahead.
Brett Taft: Yeah.
John Massocca: No, no. Continue.
Brett Taft: Yeah, I was going to say, but regardless, with approximately 9% income growth with expenses in that 4% to 7% range, that does get you to the high single-digit, low double-digit NOI, same-property NOI growth, which we’re aiming for next year.
John Massocca: Okay. I appreciate that color, and that’s it for me. Thank you very much.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Samuel Landy for any closing remarks.
Samuel Landy: Thank you, operator. I would like to thank the participants on this call for their continued support and interest in our company. As always, Jean, Anna, Brett and I are available for any follow-up questions. We look forward to reporting back to you in May with our first quarter 2024 results. Thank you.
Operator: The conference has now concluded. Thank you for attending today’s presentation. The teleconference replay will be available in approximately one hour. To access this replay, please dial US Toll Free 1-877-344-7529 or international 412-317-0088. The conference access code is 5824602. Thank you and please disconnect your lines.
