UMH Properties Inc

NYSE:UMH

Earnings Call Transcript

[Operator]

Good morning, and welcome to UMH Properties Fourth Quarter and Year-End 2024 Earnings Conference Call. [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, Mr. Craig Koster, Executive Vice President and General Counsel. Thank you. Mr. Koster, you may begin.

[Craig Koster, executive]

Thank you very much, operator. In addition to the 10-K that we filed with the SEC yesterday, we have filed an unaudited fourth quarter and year-end supplemental information presentation. This supplemental information presentation, along with our 10-K, are available on the company's website at umh.reit. We 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 fourth quarter and year-end 2024 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 the 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, Founder and Chairman; Samuel Landy, President and Chief Executive Officer; Anna Chew, Executive Vice President and Chief Financial Officer; Brett Taft, Executive Vice President and Chief Operating Officer; Jim Lykins, Vice President of Capital Markets; and Daniel Landy, Executive Vice President. It is now my pleasure to turn the call over to UMH's President and Chief Executive Officer, Samuel Landy.

[Samuel Landy, executive]

Thank you very much, Craig. UMH is pleased to deliver another quarter and year of increased FFO per share, double-digit community NOI growth and a new all-time high sales record. Normalized FFO for the quarter was $0.24 per share as compared to $0.23 per share last year, representing an increase of 4%. Normalized FFO for the year was $0.93 per share as compared to $0.86 last year, representing an increase of 8%. We are very proud of these results, and we look forward to delivering another great year on all fronts in 2025 and beyond.

We have opportunistically raised equity at prices at or near our 52-week high. This capital will be invested accretively into our platform. UMH has a long-term value-add business plan. Our past work generates our current income and FFO does not fully reflect the tremendous effort we are putting into our future results. Our approximately 2,400 acres of vacant land, 3,300 vacant sites, 500 new homes in inventory in various stages of setup with an additional 200 on the way are all part of our efforts to generate future income and ensure that we have sites available to continue our income and earnings growth.

We are balancing growth with earnings accretion and have been successfully delivering on both fronts. At any given time, UMH has $100 million or more invested that is not yet producing accretive returns. Our results are strong, but we continue to work to achieve even better results. Additionally, we have opportunistically tapped the equity market through our common ATM and raised a substantial amount of capital that has not yet been invested. As the capital raised is invested in new acquisitions, rental homes and expansions, our earnings per share should continue to grow. Our same-property operating results continue to grow. Our value-add strategy allows us to drive substantial improvements in occupancy, revenue and value over time.

Not only are our operating results strong, but our business plan accomplishes an important social mission of upgrading and adding to the current supply of affordable housing. In the fourth quarter, same-property income increased by 8% and same-property NOI increased by 8%. Same-property income for the year increased by 9% and same-property NOI increased by $11.5 million, resulting in an increase of 10%. These increases were driven by an increase in occupancy of 216 units, resulting in an increase of 70 basis points. In 2025, we anticipate similar, if not improved, same-property operating results. We anticipate further occupancy growth as we rent and sell our in-place inventory and more aggressively procure homes throughout the year.

Additionally, we anticipate continuing to achieve our 5% rent increases throughout the portfolio. Our rental home program had another good year. We added 565 homes to our portfolio. We now own 10,300 rental homes, of which 94% are currently occupied. Our annual rental home turnover is only approximately 20%. Our repairs and maintenance expenses per home were approximately $400 per home per year. We anticipate adding another 800 homes or more in 2025.

We are proud that our sales division broke our all-time sales record for the third consecutive year. Gross sales this year were $33.5 million as compared to $31.2 million last year, representing an increase of 8%. We sold 258 used homes at an average price of $50,000 and 136 new homes at an average price of $151,000. Our gross sales margin for the year was 35%. We financed approximately 59% of our home sales. We now have $89.2 million in loans at an average rate of 7%. Our sales division has the opportunity to grow further as we have several high-end expansions that opened in the second half of 2024 or are scheduled to open in the first half of 2025.

Also, we are hopeful that the new administration will revise the financing laws so that we can get more potential buyers approved for financing. This could convert existing renters that have a strong payment history to homeowners. That development could create a meaningful increase in our home sales. We are optimistic that we will be active in the acquisition market in 2025. We anticipate that this prolonged high interest rate environment may result in communities being available at more reasonable prices in 2025.

We are well positioned to execute on these opportunities when they arise. Our acquisition pipeline has grown. We now have 4 communities under contract, which contain 457 sites, of which approximately 90% are occupied. The purchase price of these communities is $39.1 million or $85,000 per site. The pipeline contains 191 sites in Maryland, which we anticipate closing in early 2025 and 266 sites in New Jersey. The blended cap rate on these communities is approximately 5.5%. We are optimistic that compelling acquisitions are becoming available.

In 2024, we completed 190 expansion sites. As I mentioned above, these sites should allow us to further grow our sales results in 2025 and beyond. We anticipate obtaining approvals for 500 or more sites in 2025 and building 300 to 400 sites. Additionally, we expect to open Honey Ridge, a joint venture property, which is a 113-site greenfield development community in Honey Brook, Pennsylvania in the second quarter of 2025. Greenfield developments and expansions take time to build and generate returns, but greatly add to the long-term value of the company.

UMH has a 56-year history in the manufactured housing industry. Our asset class is highly coveted and our portfolio of communities is irreplaceable and valuable. Over the past 1, 5 and 10 years, UMH is the top-performing manufactured housing REIT. Our total shareholder return in 2024 was approximately 30%. Over 5 years, it's 51% and over 10 years, it is 234%. We have a proven track record of executing our business plan. Since 2020, UMH has increased the dividend by approximately 19%. Our business plan has positioned us with 3,300 vacant sites and 2,400 acres of vacant land to continue our organic growth. This organic growth should allow us to generate similar earnings growth and operating results for the years to come. Additionally, with our strong balance sheet, we are prepared to execute on compelling acquisitions as they become available.

And now Anna will provide you with greater detail on our results for the quarter.

[Anna Chew, executive]

Thank you, Sam. Normalized FFO, which excludes amortization and nonrecurring items, was $19.2 million or $0.24 per diluted share for the fourth quarter of 2024 compared to $15.4 million or $0.23 per diluted share for 2023, resulting in a 4% per share increase. For the full year 2024, normalized FFO was $69.5 million or $0.93 per diluted share compared to $54.5 million or $0.86 per diluted share for 2023, resulting in an 8% per share increase. We were able to obtain this increase in normalized FFO despite our operating results being impacted by our investments in growing the company through value-add acquisitions and developments and increasing expenses due to inflation. Rental and related income for the quarter was $53.3 million compared to $49.2 million a year ago, representing an increase of 8%.

For the full year, rental and related income increased from $189.7 million in 2023 to $207 million in 2024, an increase of 9%. This increase was primarily due to the increases in rental rates, same-property occupancy and additional rental homes. Community operating expenses increased 8% during the quarter and 7% for the year. This increase was mainly due to increases in payroll and payroll costs, real estate taxes, insurance, professional fees, waste removal, water expenses and sewer expenses. Despite the increase in community operating expenses, community NOI increased by 8% for the quarter from $28.7 million in 2023 to $31.1 million in 2024 and increased by 10% for the full year from $108.4 million in 2023 to $119.7 million in 2024.

Our same-property results continue to meet our expectations. Same-property income increased by 8% for the quarter and 9% for the year, generating same-property NOI growth of 8% for the quarter and 10% for the year. From a liquidity standpoint, we ended the year with $99.7 million in cash and cash equivalents and $260 million available on our credit facility. We also had $138 million available on our revolving lines of credit for the financing of home sales and the purchase of inventory and $55 million available on our lines of credit secured by rental homes and rental home leases.

As we turn to our capital structure, at year-end, we had approximately $615 million in debt, of which $486 million was community level mortgage debt, $28 million was loans payable and $101 million was our 4.72% Series A bonds. 99% of our total debt is fixed rate. The weighted average interest rate on our mortgage debt was 4.18% at year-end compared to 4.17% at year-end last year. The weighted average maturity on our mortgage debt was 4.4 years at year-end and 5.3 years at year-end last year. The weighted average interest rate on our short-term borrowings was 6.54% as compared to 6.98% last year. In total, the weighted average interest rate on our total debt was slightly lower at 4.38% at year-end compared to 4.63% at year-end last year.

As of year-end, we had 23 mortgages totaling $115.2 million due within the next 12 months, of which 10 mortgages totaling $45.9 million are due in the first and second quarters of 2025. We are in the process of refinancing these mortgages with Fannie Mae. We believe that proceeds from these refinancings will exceed their current balances. At year-end, UMH had a total of $321 million in perpetual preferred equity. Our preferred stock, combined with an equity market capitalization of over $1.5 billion and our $615 million in debt, results in total market capitalization of approximately $2.5 billion at year-end as compared to $2 billion last year, generating an increase of 23%.

During the year, we issued and sold 12.5 million shares of common stock through our common ATM programs, generating net proceeds of approximately $220.6 million. The company also received $10.2 million, including dividends reinvested through the DRIP. In addition, we issued and sold 1.2 million shares of our Series D preferred stock during 2024 through the preferred ATM program, generating net proceeds of approximately $28 million. Subsequent to year-end, we issued 270,000 shares of common stock through our common ATM program, generating net proceeds of approximately $4.8 million. In addition, we issued 49,000 shares of our Series D preferred stock through our preferred ATM program, generating net proceeds of approximately $1.1 million.

From a credit standpoint, we ended the year with net debt to total market capitalization of 20.8%, net debt less securities to total market capitalization of 19.5%, net debt to adjusted EBITDA of 4.5x and net debt less securities to adjusted EBITDA of 4.3x. Interest coverage was 3.4x and fixed charge coverage was 2.2x. Additionally, we had $31.9 million in our REIT securities portfolio, all of which is unencumbered. The portfolio represents only approximately 1.6% of our undepreciated assets.

We are committed to not increasing our investments in our REIT securities portfolio and have, in fact, continued to sell certain positions. We are well positioned to continue to grow the company internally and externally and are introducing 2025 normalized FFO guidance in a range of $0.96 to $1.04 per share or $1 per share at the midpoint. And now let me turn it over to Gene before we open it up for questions.

[Eugene Landy, executive]

We have a mission to provide the nation with high-quality affordable housing. We have made strides in executing this mission through the acquisition and rehabilitation of older communities, the development of expansion sites and new communities and our financing of home sales. We have the best quality affordable housing at our price point. UMH is a leader in the manufacturing housing industry. We have worked with MHI and our manufacturers to improve our product and provide housing solutions in both rural and urban settings. We have championed the duplex manufactured home, which allows us to increase density and provide affordable housing in more expensive markets. We have also worked with GAF to pilot a solar home where solar shingles, unlike solar panels are installed at the factory. This will ultimately reduce our times monthly payment, thereby giving them more discretionary income, installing shingles at the factory greatly reduces the cost.

Additionally, we are working on obtaining long-term patient capital through our opportunity zone fund and our joint venture with Nuveen. There are many opportunities available, but they take time to upgrade, develop and fill. With the availability of long-term patient capital, we are able to continue to upgrade our existing communities while increasing the pace of development and value-add deals and growing UMH's future acquisition pipeline.

Our country needs an affordable housing solution. We are working diligently to do more to help provide this housing and position manufactured housing as the preferred solution to the problem. We have done a lot over the past 56 years, but we have a lot more to do. With a strong balance sheet and growth opportunities, 2025 should be an exciting year for UMH.

[Operator]

Our first question comes from Gaurav Mehta with Alliance Global Partners.

[Gaurav Mehta, analyst]

I wanted to go back to your comments. I think you mentioned 4 acquisitions under contract. I wanted to get some more color on those acquisitions, how those acquisitions were sourced? And is there any value-add opportunity in those acquisitions?

[Brett Taft, executive]

Yes, Brett here. So yes, as you mentioned, we've got 4 communities under contract now. Previously, we had 2 communities under contract. So we've increased that pipeline by 2 communities, both located in New Jersey. Those communities contain 266 sites. They are 100% occupied. The purchase price on those is $24.6 million or about $92,000 a site. Those 2 communities are obviously stabilized given the high occupancy rates. We do have some upside there in turning over a portion of the homes and increasing the rents to market because they are in New Jersey. Additionally, there's an opportunity for sales profits as we remove some of the older homes in those community, which there's not too many. We'll also be able to increase our brokerage income there through reselling tenant homes.

The 2 communities -- the 2 additional communities are in Maryland. They're the same 2 communities we've had under contract for a while now. We've been working through some diligence matters with the seller. We believe we're close to the end of that process, and those should close in the second quarter. So these 4 communities, $39.2 million total, should close in the first half of the year. Things can change, and we'll see where we land, but we're happy to grow the pipeline. We're looking at a lot of additional opportunities and think we're going to find more deals that meet our growth criteria.

You also mentioned value-add component. The only deal with a real value-add component there is one of the 2 Maryland properties. It's about 70% occupied. There's 45 vacant sites. We'll implement our typical strategy, upgrading the community, paving the roads, making sure the infrastructure and the amenities are in place, and then we'll put our rental home program in and drive occupancy growth.

[Gaurav Mehta, analyst]

Okay. Second question I wanted to ask on the mortgage. I think you said you're looking to refinance with Fannie Mae for mortgages coming due in first half of '25. Just wanted to get some more color on what kind of interest rates should we expect on those refinancings?

[Anna Chew, executive]

Well, we are using Fannie Mae, and we are in discussions with Fannie Mae. As a matter of fact, we're in the due diligence process in that respect. Based on the current interest rates, we believe that we will be under 6%, probably in the 5.5% to 5.75% range. And we believe that the proceeds from it have -- is more than our current balances. So we will be able to take additional capital out of those refinancings.

[Samuel Landy, executive]

Sam here, I just want to mention, when we refinance these properties, we get appraisals. And appraisals prove everything we always say, you take every dollar we paid for a community, every dollar we put into it and 10 years later, they double in value. Add to that, I looked at one of the communities being refinanced where we had built a 10 lot expansion years ago. But back then, the expansion lots cost approximately $50,000 per lot, and we were adding sales -- earning sales profits. So the net cost of those lots was significantly less than $50,000. And today, those lots appraised at $102,000 per lot.

[Gaurav Mehta, analyst]

Okay. Last question I have is on G&A. Just wanted to get some more color. Was there any nonrecurring items in the 4Q G&A that you guys reported?

[Anna Chew, executive]

In the G&A, yes, it did increase for the fourth quarter. That was primarily due to additional bonuses that we accrued for because of our good operating results. Over the year, we record the amount that's based upon, again, current earnings and current operations. But at year-end, what we do is we look at the whole picture and see how much we need. In total, I think G&A did go up about 8%. So therefore, we believe that, that is probably the going rate into next year, around there anyway, 7% to 8%, depending, of course, on inflation and other things that we do.

[Operator]

And the next question comes from Rob Stevenson with Janney.

[Robert Stevenson, analyst]

Anna, what are the big swing factors that cause you to report the high end versus the low end of your 2025 guidance range?

[Anna Chew, executive]

I will give that to Jim. Jim?

[Samuel Landy, executive]

I would say the big 2 are home sales and acquisitions.

[Robert Stevenson, analyst]

Okay. So at the top end, you do more than the 4 that you guys have talked -- that Brett talked about before. And then you'd also be doing more home sales than what you did in 2024?

[Samuel Landy, executive]

Exactly.

[Brett Taft, executive]

And just to add on the home sales comment, over the past few years, we've invested a lot of money into our expansions, which are now opening. They're getting a lot of positive traction. And there's always a variable in the pace and the timing of sales. So we've got the opportunity in Maryland at Cinnamon Woods. I believe it's 60 lots, which we've just opened. Those should be highly profitable sales. The question is how many and how quickly do we gain traction. Holiday Village in Nashville, which 2 years ago, we had a new expansion open. We sold 36 new homes, $5 million in volume. That was an exceptional year. It was so good that we ran out of lots. So that really wasn't totally reflected in the 2024 numbers, but the good news is we're opening a new phase right now with another 70 lots.

So we've got the opportunity to substantially improve sales at that location. You look at Duck River Estates down in Columbia, Tennessee, an outstanding location, only a few vacant lots right now, but we're in construction on another phase. That will be, I believe it's 95 lots. So I could keep going down this list, but the point being there's a lot of expansions opening. It's hard to exactly predict what sales are going to be. They could completely exceed our expectations or it could be 10% growth over 2024.

[Robert Stevenson, analyst]

I guess along those same lines, you've got still a significant occupancy upside at your 5 Southernmost assets in Alabama, Georgia and South Carolina. What type of monthly leasing velocity have you seen there? And how has that been trending over the last 6 months or so?

[Brett Taft, executive]

Yes. We've been doing very well at those communities. I would say Alabama has probably got 40 vacant sites left to fill. We believe that at the first property down there, Deer Run, we expect those sites to be full this year. The second property that we opened in Alabama, we ran into some zoning and site plan issues. We're through those problems now, and we're rapidly infilling that property over the last 3 months of the year, I believe we filled 20 units. But again, now we're at the point where we're bringing new inventory in, getting it set up and have a few capital improvements we need to complete before we can really work on filling the rest of that property.

South Carolina, the first asset we acquired is basically full. There's a few vacant sites, but it's really just rental home turnover. The second property, we're again working on infrastructure improvements so we can keep putting homes in. So I'd say demand and velocity is extremely strong. It's just a function of when can we complete these improvements, when can we get the homes and ultimately, once we have the homes in place and set up, they're renting as rapidly as we can get them in.

[Robert Stevenson, analyst]

Okay. That's helpful. And then you guys talked about adding 800 new rental homes in 2025 to the portfolio. What is the average price per rental home you're buying today? And how is that cost changing given the elevated levels of inflation and changes to material and labor costs?

[Brett Taft, executive]

Yes. Prices have actually been relatively consistent over the last year. We're invoicing around $60,000 to $65,000 in some cases, less than that based on winter discounts. We've got $10,000 to $15,000 in setup. So we're in that $70,000 to $75,000 for your typical single-wide rental home. In certain cases, we're renting multi-section homes. Those are on the books for probably about $90,000 a home, but they're generating higher rents. So that's where it's been. We were optimistic that home prices will not change too much. If you go back to the middle to end of COVID. Prices have come down from there. So we're still well below that peak, and we are hopeful that it doesn't get up there again, but only time will tell.

[Robert Stevenson, analyst]

Okay. And then the last one for me. How much more does it cost to put the solar shingles on one of these homes than traditional shingles that Gene was talking about?

[Eugene Landy, executive]

This is absolutely amazing. To put a solar in a manufactured home in a park is over $25,000 and to put it in a factory where you build it is under $15,000. On top of that, it is simply amazing to see the process and it takes less than 45 minutes to put a roof on a house. This is -- it's a remarkable what we can do with the factory-built housing.

[Robert Stevenson, analyst]

And does that number already include any type of federal or local rebates, et cetera? Is that net? Or is there benefits to you guys on top of that?

[Samuel Landy, executive]

Yes. The roof is not going to be owned by UMH. In the beginning, a third-party company will own the roofing shingles. The tenant's utility bill is going to go down because of the solar roof and UMH will be paid a small amount for use of the roof. But the big benefit is reducing the residents' monthly utility costs through solar. The second step of this at some point, the technology is not there today. But at some point, the factory can install the battery and they can install the battery at the factory at a lower cost than doing it anywhere else, and then they can install the car charger at the factory at a lower cost than doing it anywhere else.

So ultimately, and it may be 3 years from today, I don't know when it will be. But ultimately, the factory home will have a solar roof and the owner of that shingle gets all of the rebates, not us. It will have a factory solar roof, a factory battery and a factory car charger so that at our houses, someone can park their car in the driveway, plug into their solar car charger at night because the electric coming from the battery and charge their car at a lower fuel cost than anywhere else. So that's the ultimate objective. At this moment, I think it's 20 homes are being delivered with the solar shingle. And that's where we are.

[Robert Stevenson, analyst]

Okay. So your cost on those homes isn't going up to $75,000 to $80,000, that $15,000 for the factory done stuff is being paid for by Solar Run or one of those type of companies out there, and that cost is not basically hitting you guys in terms of the cost of the rental unit.

[Samuel Landy, executive]

Did I get it all right, Brett?

[Brett Taft, executive]

That is absolutely correct, yes.

[Robert Stevenson, analyst]

Okay. So no cost differential to you, that's a third party.

[Operator]

And the next question comes from Rich Anderson with Wedbush.

[Richard Anderson, analyst]

So 565 rentals added in 2024, a target of 800. What gives you the confidence that you can see that type of acceleration on the rental side?

[Brett Taft, executive]

Yes, Brett here. So if you go back to 2023, when we had adequate inventory, we're able to rent close to 1,000 homes and including sales, it was -- I think it was around 1,100 total homes moved from our inventory. Last year, given the challenges we had in 2023, obtaining the homes, getting them set up, utility issues, carrying costs related to interest on floor plan, et cetera, we were just a little bit more conservative in the first quarter, which really sets us up for occupancy gains throughout the year.

So this year right now, we have about, including our joint venture, 680 homes in inventory or on order, I'm sorry. We've got about 490 of those already delivered to our communities. about 390 of those were delivered within the last 6 months. So we already have a better starting inventory place than we did. These homes are located in strong markets where they generally rent as soon as they're fully set up and COed and ready for occupancy. So we anticipate faster growth in the rental home program in the first half than we saw last year, and we will more aggressively order homes as we're occupying homes at these strong demand locations.

[Richard Anderson, analyst]

Brett, what is the chance that some of those 500 or 600 homes that are sitting in inventory don't get rented but get sold?

[Brett Taft, executive]

There's definitely a good chance that a lot of those homes and inventory get sold. Again, same strategy, we would go and continue to replace those homes. And if somebody wants to come in and buy it, we will sell it to them. If somebody wants to rent it, we will rent it to them. We do anticipate growing sales last year, given some of the expansions we've opened that we discussed earlier on the call, I would think that sales of new homes should be in the 200 new homes next year. I think we did about 130 last year, if I remember.

[Anna Chew, executive]

136, yes.

[Brett Taft, executive]

We expect growing sales. But again, I think that we're going to see a lot more of our growth through the rental program at our high-demand locations, which have historically proven that they're able to do this. Again, going back to 2023, we had one community that rented 100 homes. We had several other communities that rented 60 or 70. Those properties do still have vacancy and do still have strong demand and are doing a good job keeping their occupancy rates up on the existing rental program. So not promising we'll hit those exact numbers again, but we do believe that we'll be able to get 800 new homes in this year on the rental front and hopefully sell 200 new homes.

[Richard Anderson, analyst]

Okay. And then we talked -- what's that?

[Samuel Landy, executive]

No, go ahead, Andre.

[Richard Anderson, analyst]

So we talked a month or so ago about some of the changes and Sam, you referred to maybe an ability to sell more homes with the new administration in place and so on. I'm wondering what your thought is about the ability to sell more, perhaps relaxing Dodd-Frank or whatever driver that might be. Do you feel like the economics are better or worse as a home renter or a home seller from your lens? Or is it kind of a wash and you just like the optionality?

[Samuel Landy, executive]

Well, the important point is UMH has over a 50-year history operating communities. And we have absolutely proven that communities with factory-built homes for sale or rent work. It's that simple. We're the most efficient provider of housing because the factories provide a great product at a low price and then we provide a great community at a fair price. And there are people who only need housing on a 1- or 3-year basis. They see themselves as temporary. Those are always going to be renters. And because we opened the door to those people, right, previously, that door was closed to them. Previously, the original model of manufactured home communities was you own the home and rented the lot.

So that whole group of people was not a potential customer. We've brought 10,300 of those people in as customers. Now sales continue because as somebody lives in a rental and says, you know this is a great community, and this is where I want to live and the house, they appreciate and value, you build equity in the house. As this occurs, we get more and more sales. And we've done a great job putting our communities near each other and our marketing and all of that's increasing sales. But add to that, the possible changes in the finance laws, if it happens, would create a dramatic increase in home sales.

[Richard Anderson, analyst]

Okay. Do you -- when you're talking to your rental residents, is there a very clear percentage of those people that are renting that would love to own, but simply can't? I mean, do you get that very palpable sort of indication within your portfolio?

[Samuel Landy, executive]

Well, we do convert resident-owned homes to rentals today. They build equity in their house. They only get the rent increase on the lot rent, not on the full home rent. So they reduce the rent increase by basically 50% by owning the home. I don't talk to enough residents to give you an actual survey. But my -- the ultimate objective is 100 to 300 and maybe more of those 15-year-old homes each year could be sold to the existing resident, and we continue to still grow the rental home portfolio by 800 units with 800 new rentals.

[Richard Anderson, analyst]

Okay. That's really interesting. I just would be really curious of that 10,300 of rental homes, if you ever were to do a survey, how many of them are happy as renters or would rather be an owner? That would be interesting data for me, I guess. But anyway, just a comment.

[Operator]

And the next question comes from Craig Kucera with Lucid Capital Markets.

[Craig Kucera, analyst]

Your leverage has significantly dropped over the past couple of years. And I'd be curious to hear, is there a target that UMH is looking to work toward? Or has this just been a matter of taking advantage of the capital markets?

[Anna Chew, executive]

Craig. We are -- as you know, we've always been a conservative company. Our net debt to total market cap is usually in the 30% to 40% range. We did take advantage of the capital markets. But don't forget, every year, we are a growing company. Based on our business plan, we need between $120 million to $150 million a year. So therefore, we opportunistically raise additional capital, which we believe that we will use. Additionally, we did have $115 million in debt coming due. So we wanted to make sure that we had the capital not only to pay down our debt, but also for -- to grow our company. So we did have additional ATM proceeds last year, which is fine, which is great because we will be using it this year.

[Eugene Landy, executive]

Our goal is to build at least 1,000 homes a year, and I'd like to see UMH do 2,000 homes a year. And if it costs $100,000 for the home installed and -- the total cost is $200,000 or even call it $250,000. So it's $200 million to do 1,000 homes, and we'd like to do even more. So it's a capital-intensive business, and it takes a long time to build these communities and to get the community filled and to get the rents where it's very productive. But we've been doing it a long time, and we're going to continue to do it. And we're going to continue to grow the company, both equity capital, preferred capital and debt capital.

And if I can add one thing, the country is doing one thing in housing very well, and that's the government-sponsored entities. What Anna said is we can get long-term financing of our communities at or below 6% in this market at this time, and that's simply amazing. Other REITs that are in different categories, offices, hotels, they don't have the advantage of the government-sponsored entities, and they're paying 2, 3, 4 points higher than we have access to the capital market, the debt market. So it's a big advantage to our sector and to UMH.

[Craig Kucera, analyst]

Okay. Great. Changing gears. Brett, I think your operating expense budget typically is about 5% to 7% on a same-store basis. Is that still the expectation in 2025? Or is there maybe going to be a little bit more excess because of the very snowy winter and snow removal costs? Or any color there would be appreciated.

[Brett Taft, executive]

Yes. I would say 5% to 7% is still the right range. Honestly, 5% would be phenomenal. I think it's probably in the 6% to 7% range, given what you mentioned with storms, snow removal, et cetera. I'd also add, there's a few other items that are in our 8% in the fourth quarter, professional fees related to some various projects and tax appeals and things like that, that increased, which we don't expect to happen next year. So we feel pretty comfortable for the full year 2025, we will be in that, call it, 6% to 7% range. 5% would be great. There's probably going to be some other additional inflationary pressure on our operations.

[Craig Kucera, analyst]

Got it. That's appreciated. Let's talk about UMH Finance for a second. Just given what's happened with home prices, are you seeing any change in the typical buyer versus a few years ago? Are they maybe better credits or higher income than they were that have been completely pushed out of maybe potentially buying a single-family home? Or has credit and income been relatively constant over the last few years?

[Samuel Landy, executive]

No. My belief is the widening of the affordability gap plus the fact that we're building these great expansions, putting in extremely high-end homes better than any homes of the past results in higher credit quality, higher down payments. You could see the percentage that paid cash for the homes. So as conventional -- the conventional home sales are currently a little bit blocked. But as people can sell their existing home, you're going to see more and more of them downsize and buy a house from us, all cash. And those are going to be our highest end homes at $250,000 or $300,000 with lot rents of about $750,000 per month. And that -- it's kind of more like 2006 when we were selling the biggest, most expensive houses to people downsizing. And I see that occurring for the next 5 years while we have available expansion lots.

[Craig Kucera, analyst]

Great. Just one more for me. I'd be curious if you had any conversations with the manufactured housing builders about how tariffs might impact the business? Are they worried about input costs? Or maybe will there be any supply chain issues?

[Samuel Landy, executive]

Brett, do you have anything there? I don't know of anything.

[Brett Taft, executive]

All I can really say there is that in speaking with and ordering homes from our manufacturers, we haven't experienced any issues yet. Backlogs are still in that, call it, 8-week range, some of them a little bit further out than that. So to this point, there haven't been any major problems. I'm sure it's something our manufacturers are worried about, but we'll update you as we get more information there.

[Operator]

And the next question comes from John Massocca with B. Riley.

[John Massocca, analyst]

So with the acquisitions, I know you kind of gave the cap rate, but what's kind of the stabilized return you're looking for across that entire pipeline?

[Brett Taft, executive]

Yes. So looking out over, call it, 5 years, we should be yielding in the 6.5% to 7% range on these properties.

[John Massocca, analyst]

Okay. Appreciate the color. And then on the in-place portfolio, any change in kind of bad debt expense in 4Q or even anything you're seeing into this year thus far?

[Anna Chew, executive]

Not at all. We still maintain approximately a 1% write-off. So we're very happy with our experience in that regard.

[John Massocca, analyst]

Okay. And then how should we kind of think about headline occupancy as you keep adding new homes to the portfolio? I guess, is the level we kind of saw in 4Q indicative of where things should go just given the kind of new vacancy being added to the portfolio every quarter, if you will, because you're putting in new sites and you're putting in new rental units, et cetera? Or is there potential for that vacancy number to shrink even further?

[Brett Taft, executive]

Yes. So what I would say is that there's definitely potential for this existing pool of assets and the vacancy number to shrink further. Overall occupancy in 2024 increased by 216 sites. This is same property now brought occupancy to 88%. If we fill 800 new rental homes, sell 200 new homes, I would expect an increase in overall occupancy of 600 to 700 units. You're always going to have some turnover. You're always going to have some obsolescence in our portfolio. So we will be removing some homes as well, which is why there's that gap there. And just thinking about it a little further, 262 units would be about 100 basis point improvement. So that would bring us up into the low 90% range.

Now we are out there looking for value-add acquisitions that do have some more vacancy that would give us more vacant lots to fill and grow income in the future. So this pool of assets, I would say there's definitely occupancy upside. But again, I wouldn't be surprised if we do some acquisitions that bring the overall weighted occupancy rate down.

[Anna Chew, executive]

No, I was just going to say we believe same-store will continue to go up. It's just the overall based upon our business plan of buying value-add communities.

[John Massocca, analyst]

Okay. And then kind of with that in mind, how should we think about the split in future acquisitions between on balance sheet and JV? I mean, I guess how value add would an asset need to be for it to be better structured in the joint venture?

[Samuel Landy, executive]

In a sense, we don't know that -- the answer to that question, I'll tell you why. We have the joint venture with Nuveen for development, which works extremely well for both us and Nuveen. And one of those properties, my belief is already profitable. We hesitate to do more new development at this moment until more -- we're adding -- earning more sales income and more rental profits. Once these 3 development deals are profitable, next time, we might consider doing 6 because it won't negatively impact our earnings as great as 6 would today.

And then on turnaround properties, we created the opportunity zone fund. If we succeed in getting that law amended, so any investment in affordable housing in an opportunity zone would not pay the capital gains tax at the end of 10 years, then we could do many more turnaround properties in the opportunity zone without hurting UMH's earnings. So it goes back to our #1 goal, keep increasing FFO per share. So we're in a position to increase the dividend, weigh every acquisition with that thought in mind, but those 2 vehicles, the Nuveen joint venture and the opportunity zone fund give us the opportunity to increase development and rehabilitation without going away from our main goal.

[John Massocca, analyst]

Okay. That makes sense. And then last one for me. Any update on the kind of single-family housing developments that were kind of potentially in the pipeline, either the one in New Jersey or any other kind of opportunities that were out there?

[Samuel Landy, executive]

Craig Koster, do you want to cover that?

[Craig Koster, executive]

Sure. We recently entered into a preliminary agreement with a leading national luxury homebuilder regarding the potential formation of a JV to develop 131 acres in Vineland, New Jersey, adjacent to one of our existing communities. We're current -- the parties are currently engaged in the 90-day due diligence period, during which we intend to commence preliminary discussions for approvals with the municipality. If the parties elect to proceed, then the potential JV partner would seek preliminary subdivision and site plan approval over the next 2 years, and they would be responsible for the cost in doing so. If the approvals are obtained, the joint venture would then be formally established.

The JV partner would construct the roads, the infrastructure, the site improvements and then sell the improved lots to an affiliate of the joint venture partner, which would construct these luxury single-family homes. to sell to purchasers. UMH would contribute the real property to the JV and receive a percentage of the gross sales price of each of the homes. It's anticipated to be 20% minus certain deductions.

[Eugene Landy, executive]

Well, if I could add one more thing. The nation needs 4 million houses. If it needs 4 million houses for the shortage, we must have 4 million lots. The builders in this country, the tremendous size and they build a lot of lots, but you're talking about a need for land, the need for approved sites UMH has how many acres?

[Unknown Executive]

2,400.

[Eugene Landy, executive]

We have 2,400 acres that we hope eventually to use that for residential development and either use it for home manufactured housing or if it's more valuable for single-family development, it will be used for that. But the nation has a shortage of land, and we have always bought land that is adjacent to our existing communities. We've done that for many, many years, and we have a very nice portfolio of land that we're now putting to work.

[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, executive]

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, Brett and I are available for any follow-up questions. We look forward to reporting back to you in May with our first quarter 2025 results. Thank you.

[Operator]

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