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Date
Thursday, Aug. 7, 2025 at 2:00 p.m. ET
Call participants
President and Chief Executive Officer — Samuel Landy
Executive Vice President and Chief Financial Officer — Anna Chew
Founder and Chairman — Eugene Landy
Executive Vice President and Chief Operating Officer — Brett Taft
Vice President of Capital Markets — Jim Mickens
Executive Vice President — Daniel Andy
Director of Investor Relations — Craig Koster
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Takeaways
Normalized FFO-- Normalized FFO was $19.5 million, up 16%, with normalized FFO per diluted share at $0.23, flat year-over-year and up 3% sequentially.
Total revenue-- $66.6 million versus $60.3 million for the second quarter ended June 30, 2025 and the second quarter ended June 30, 2024, driven by rental and related income rising to $56.1 million (up 9%) and sales income reaching $10.5 million.
Same property NOI-- Same property community NOI increased 10% to $34 million, reflecting notable operating leverage.
Dividend increase-- Quarterly dividend raised 4.7% to $0.225 per share, marking the fifth consecutive annual increase in the common stock dividend. The annual dividend rate is now $0.90 per share.
Appraised value uplift-- Ten refinanced communities appraised at $164 million versus a total investment of $67 million, creating $97 million, or 146% value above cost.
Capital structure-- Debt stood at $659 million, 99% fixed rate, with a weighted average interest rate on total debt of 4.63% and a weighted average mortgage maturity of 5.4 years at quarter end.
Capital raises-- Issued $101.4 million of new GSE debt at 5.855%, $80.2 million of Series B Israeli bonds at 5.85% (issued on July 22, 2025, after the second quarter), and 1.8 million common shares for gross proceeds of $31 million.
Rental home occupancy-- 94.4%, a slight decrease from 95% the previous year, with 305 new homes converted to rentals year-to-date.
Preferred equity-- $322 million in perpetual preferred equity at quarter-end, and $100 million eligible for sale under the 2025 preferred ATM program.
Recent and planned acquisitions-- Four communities acquired year-to-date, totaling 457 sites for $39 million, with two New Jersey and two Maryland properties added, and a growing acquisition pipeline cited.
Guidance-- Management confirmed, "We are confident in the low end of the guidance." Maintaining the $0.96-$1.04 normalized FFO per share range for 2025.
NOI margin trends-- Same property operating expense ratio improved to 38.2%, down from 39.4% last year, and same property operating expenses rose just 5%, despite overall community operating expense growth of 7%.
Liquidity-- $79.2 million in cash and equivalents, $260 million available on an unsecured revolver (expandable to $500 million), $194 million in other lines for home sales financing, and a $30.2 million unencumbered REIT securities portfolio.
Pipeline and inventory-- 450 homes on-site (145 ready, ~300 being set up), 200 more homes on order.
Summary
Management emphasized a capital allocation shift from equity to debt financing in 2025, citing debt as a more accretive option due to favorable rates secured in refinancing and bond issuance. The company highlighted strategic value creation, with refinanced assets yielding a $97 million uplift above cost, and an ongoing pipeline for additional acquisitions and expansion. Operationally, manufactured home sales delivered outsized growth, with year-over-year rental and NOI gains, while cost discipline lowered same property expense ratios. No change was made to annual guidance, but management expressed "very confident" sentiment for achieving the lower end and described multiple immediate policy tailwinds related to HUD initiatives that could uplift sales, rent, and future investment values. Liquidity remains substantial, supporting ongoing deployment into rental home inventory, expansions, and targeted purchases.
The company reported industry-leading returns, with management stating, "total two year return was an industry leading 17%, and our five year total return was an industry leading 76.7%."
The capital improvement budget for the year is approximately $20 million, with ongoing focus on major upgrades such as roads, water, and sewer lines to drive property value increases.
The sequential decline in interest income was attributed to a combination of deploying cash for operations and a slight decrease in market rates, as discussed in the context of quarterly results.
Brett Taft said, "demand is incredibly strong throughout our locations," supporting the velocity of rental conversions and sales activity.
Recent and proposed regulatory changes, such as crediting security deposits toward home purchases and tax treatment of income from tips, were confirmed as key sales catalysts by management.
Management committed to holding the REIT securities portfolio flat or lower, with an explicit statement: "We are committed to not increasing our investments in our securities portfolio and have, in fact, continued to sell certain positions."
Industry glossary
GSE: Government-sponsored enterprise (e.g., Fannie Mae, Freddie Mac) providing financing for housing-related asset classes.
NOI: Net operating income — total property income less direct operating expenses, a key profitability metric for real estate assets.
ATM program: At-the-market offering program — enables a company to sell shares directly into the market incrementally at prevailing prices.
DRIP: Dividend reinvestment plan — allows shareholders to reinvest dividends in additional shares without commissions.
Opportunity zone: Geographically designated area offering tax incentives for investment, aimed at stimulating economic development and growth.
Full Conference Call Transcript
Craig Koster: In addition to the 10-Q that we filed with the SEC yesterday, we have filed an unaudited second quarter supplemental information presentation. This supplemental information presentation, along with our 10-Q, 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 second quarter 2025 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 Mickens, vice president of capital markets; and Daniel Andy, executive vice president. It's now my pleasure to turn the call over to president and chief executive officer, Samuel Landy. Thank you very much, Craig.
Samuel Landy: Normalized FFO for the quarter was $0.23 per share for both the 2024 and 2025. Overall, normalized FFO was up 16% or $2.6 million for the quarter, and 20% or $6.4 million for the year. Our strong financial and operating results have given and the board of directors the confidence to increase our quarterly common stock dividend by 4.7% from $0.15 per share to $0.225 per share representing an annual dividend rate of $0.90 per share. We have now increased our dividend for five consecutive years for a cumulative annual increase of $0.18 or 25%. Our earnings per share were by the issuance of $101.4 million of new GSE debt at a 5.855% interest rate.
Subsequent to quarter end, we issued a new Series B Israeli bond at a 5.85% interest rate. The capital raised sub 6% will be deployed accretively over time. We have capital needs of $120 million to $150 million annually we invest in our capital improvements new rental homes, expansions, and financing of home sales most of these uses being accretive uses of capital. Over the past two years, we have relied on our common ATM to fund our growth initiatives. This year, we are utilizing our ATM less and debt more. In the long term, this debt will be repaid. We currently have $150 million in capital available to invest in our growth initiatives.
Additionally, we are actively exploring acquisition opportunities, and we believe we will find compelling deals to deploy this capital. Grow the company, and ultimately grow earnings per share and our share price. Had an active and outstanding 2025. The quarter was highlighted by the refinancing of 10 communities for gross proceeds of $101.4 million. These properties were appraised as part of the refinancing process. The appraised value of the 10 communities was $164 million or $82,000 per site. [COMPANYNAME]'s total investment in those properties to date is just $67 million meaning that in 10 out of our 144 communities, we have created $97 million in value.
The incredible takeaway from these results is that as important as FFO and FFO per share results are, it's as important to be aware of the value adds to our investments in our communities. Our Marcellus and Utica Shale strategy which began in 02/2011, has resulted in substantial appreciation of the land, communities, homes, and approvals we own in the area. Data centers, the shell cracker plant, pipeline projects, new gas wells, and electric generation plants all create the need for more quality affordable housing. [COMPANYNAME] owns 4,000 acres of land in 78 communities with 12,300 home sites the Marcellus and Utica Shale areas.
Currently, we own and operate a total of 144 communities including our three joint venture communities, containing 26,800 developed home sites, 10,600 rental homes situated on 8,200 acres of land. The $10 billion Homer City gas-fired power plant located in close proximity to four communities it's demonstrating proof that our strategic investments in the energy-rich Marcellus and Utica Shale regions are working. This power plant will benefit the Pennsylvania economy and a especially Western Pennsylvania where we own 28 communities and where we have also seen increased interest in the leasing of our oil and gas rates. Our Nashville and Southeastern United States is also delivering occupancy increases strong sales profits and increased property values.
Our well-located communities with our strategy of creating quality affordable housing in communities of factory built homes for sale or rent is generating industry leading performance. As of 07/18/2025, total two year return was an industry leading 17%, and our five year total return was an industry leading 76.7%. During the second quarter, we increased total revenue from $60.3 million in the second quarter of last year consisting of $51.5 million in rental and related income and $8.8 million in sales income to $66.6 million in the second quarter of this year, consisting of $56.1 million in rental and related income and $10.5 million in sales income. That represents an increase in quarterly total income of approximately 10%.
For the three and six months ended 06/30/2025, rental and related income increased 9% from the prior year period, and community NOI increased by 119%, respectively. During the quarter, we increased same property by 76 units over the first quarter and by 251 units over last year. Same property rental and related income increased by 8% and same property NOI increased by 10%, or approximately $3.1 million. Year to date, same property rental and related income increased by 8% and same property NOI increased by 9%, or $5.6 million. Our same property operating expense ratio for the quarter fell to 38.2% as compared to 39.4% last year. Our rental home occupancy was 94.4% as compared to 95% last year.
During the quarter, we converted 190 new homes from inventory to revenue generating rental homes. Year to date, we have converted 305 new homes from inventory to revenue generating rental homes. We currently have 450 homes on-site, 145 ready for occupancy and another 300 being set up and an additional 200 homes on order have not yet been delivered. We anticipate by the 2025 we will have added 700 to 800 new rental homes. Sales of manufactured homes continues to grow driving additional sales profits. Gross sales for the quarter were a sales record at $10.5 million. For the three and six months ended 06/30/2025, sales of manufactured homes increased by 196%, respectively, from the prior year period.
Gains from the sales for the quarter was $1.5 million or 14% of total sales. Gain from the sales for the six months was $2.2 million or 13% compared to $1.8 million or 11% last year. We acquired two New Jersey communities on 03/24/2025 consisting of 266 lots which are 100% occupied, and subsequent to quarter end, we acquired two Maryland communities consisting of 191 lots, which are 79% occupied. Year to date, we have closed on four communities containing 457 sites for a total purchase price of $39 million. We continue to evaluate future acquisitions and anticipate growing our acquisition pipeline in short order. We continue to invest in greenfield development through our joint venture with Nuveen Real Estate.
We have made progress filling our two Sebring, Florida communities and have recently opened our third joint venture community Honey Ridge in Honeybrook, Pennsylvania. Honey Ridge is a 113 site community that officially opened in June. Sales traffic is incredibly strong, and the homes are selling as we set them up. We anticipate our investments in a joint venture to generate increased cash flows and improve results as we continue to fill the communities. We invite you all to come to the Innovative Housing Showcase on September 6 to September 9 in Washington DC on the National Mall we will be showing three of our homes.
These homes will be a Ritzcraft Multisection home, a Champion single section home, both homes with factory installed GAF solar shingles, factory installed solar batteries, and factory installed car chargers, and a Capco multisection home to highlight the upcoming possibility of two-story HUD code homes. We are excited about HUD's desire to solve the affordable housing crisis by breaking down zoning barriers and providing incentive for more manufactured home community development with easier to obtain lower cost financing. The big beautiful bill made opportunity zones a permanent structure which could enable to improve and build more communities within opportunity zones. [COMPANYNAME]'s current opportunity zone fund has grown its annualized revenue from a year ago more than $900,000.
These results demonstrate the potential growth impact of opportunity zones. We view our 3,100 vacant lots and 2,300 acres of vacant land 349 fully entitled lots, 406 completed and constructed lots, and 500 lots in the approval process as incredible opportunities to increase rental revenue, sales revenue, finance and insurance revenue, and increase value and FFO per share. This organic growth should allow us to generate earnings growth and improve operating results for the years to come. Additionally, with our strong balance sheet, are prepared to execute on compelling acquisitions as they become available. The fundamentals of manufactured housing are strong and is well positioned to grow through our established long term business plan.
And now I turn it over to Anna to discuss our second quarter results.
Anna Chew: Thank you, Sam. Normalized FFO, which excludes amortization and nonrecurring items, increased 16% from $16.8 million for the 2024 to $19.5 million for the 2025. Normalized FFO per diluted share amounted to 23¢ for both the 2024 and 2025. Sequentially, normalized FFO increased 3% or $632,000 from the 2025. Rental and related income for the quarter was $56.1 million compared to $51.5 million a year ago. Representing an increase of 9%. This increase was primarily due to an increase in same property occupancy the addition of rental homes, and increase in rental rates, and the purchase of two communities at the end of the 2025. Community operating expenses increased 7% during the quarter.
This increase was mainly due to the two communities purchased at the end of the 2025 an increase in payroll costs, real estate taxes, snow removal, water, and sewer expenses. Our same property results continue to meet our expectations. Same property income increased by 8% for the quarter while same property community operating expenses only increased by 5%. Resulting in an increase in same property community NOI of 10% for the quarter from $30.9 million in 2024 to $34 million in 2025. As we turn to our capital structure, at quarter end, we had approximately $659 million in debt.
Of which $530 million was community level mortgage debt. $28 million with loans payable, and a $101 million without 4.72% series a bond. Total debt was 99% fixed rate at quarter end, with a weighted average interest rate of 4.63%. The weighted average interest rate on our mortgage debt was 4.52% at quarter end, compared to 4.17% at quarter end last year. The weighted average maturity on our mortgage debt was five point four years at quarter end and four point eight years at quarter end last year.
In this volatile interest rate environment, the weighted average interest rate on our short-term borrowings was 37 basis points lower at 6.44% at the current quarter end as compared to 6.81% at quarter end last year. In total, the weighted average interest rate on our total debt was seven basis points higher at 4.63% at the current quarter end compared to 4.56% at quarter end last year. At quarter end, [COMPANYNAME] had a total of $322 million in perpetual preferred equity. Our preferred stock combined with an equity market capitalization of over $1.4 billion and our $659 million in debt. Results in total market capitalization of approximately $2.4 billion at quarter end as compared to $2.1 billion last year.
Representing an increase of 13%. During the quarter, we issued and sold 1.8 million shares of common stock under the September 2024 common ATM program. At a weighted average price of $17.60 per share. Generating gross proceeds of $31 million and net proceeds of $30.3 million after offering expenses. The company also received $2.2 million including dividends reinvested through the DRIP. During the quarter, we did not issue and sell any shares of our Series D preferred stock under our 2025 preferred ATM program. And we currently have $100 million eligible for sale under the 2025 preferred ATM program.
Subsequent to quarter end, we issued and sold an additional 160,000 shares of our common stock under the September 2024 common ATM program at a weighted average price of $16.99 per share. Generating net proceeds after offering costs of $2.7 million. We currently have $46.7 million of common stock remaining eligible for sale until the September 2024 common ATM program. From a credit standpoint, we ended the quarter with net debt to total market capitalization of 24.1%. Net debt less securities to total market capitalization of 22.9%, net debt to adjusted EBITDA of 4.8 times and net debt less securities to adjusted EBITDA of 4.5 times. Interest coverage was 3.8 times and fixed charge coverage was 2.3 times.
During the quarter, we paid off 11 mortgages totaling $43.1 million with cash on hand. In addition, as Sam mentioned, during the quarter, we completed the addition of 10 communities to our Fannie Mae credit facility for total proceeds of $101.4 million. This interest-only loan is at a fixed rate of 5.855%. With a ten-year term. As part of the refinancing process, a certified appraisal was conducted and concluded that these 10 communities appraised for $164 million. Whereas our total investment in these communities is $67 million. Demonstrating an increase in value of $97 million or 146% from our cost basis on these 10 communities.
Subsequent to quarter end, on 07/22/2025, we sold $80.2 million of 5.85% Series B bond that are due in 2030. The net proceeds of the sale of these bonds after deducting offering discounts, fees, and other transaction costs was $75.2 million. On 07/08/2025, we amended our $35 million revolving line of credit with OceanFirst Bank to extend the maturity date to 06/01/2027. Interest is at prime with a floor of 4.75% and is secured by our eligible notes receivable. From a liquidity standpoint, we ended the quarter with $79.2 million in cash and cash equivalents and $260 million available on our unsecured revolving credit facility with a potential total availability of up to $500 million pursuant to an accordion feature.
We also had $194 million available on our other lines of credit for the financing of home sales and the purchase of inventory and rental homes. Additionally, we had $30.2 million in our REIT securities portfolio, all of which is unencumbered. The portfolio represents only 1.4% of our undepreciated assets. We are committed to not increasing our investments in our securities portfolio and have, in fact, continued to sell certain positions. At this time, we are not updating our full-year 2025 guidance. We are well-positioned to continue to grow the company internally and externally. And now let me turn it over to Eugene Landy before we open it up for questions.
Eugene Landy: Thank you, Anna. [COMPANYNAME] is a leader in the manufactured housing and affordable housing in this believe that our years of hard work will lead to a favorable legislative changes that will allow us and the nation to increase the supply of affordable housing while generating industry leading returns.
Samuel Landy: Our mission to provide quality affordable housing is an important and worthwhile cause. Recent changes in the head code allowed duplexes, triplexes, quadplexes, and potentially two-story homes.
Eugene Landy: These changes greatly increase the value of our existing investments and have made new investments where land costs are higher affordable housing is needed more attractive to us. Additionally, we are proud of our partnership with GAF to install solar shingles at the factory. Factory production should reduce the cost of solar shingles and thereby utility costs, further benefiting our tenants. We have seen positive proposed revisions to the opportunity zone laws that may make raising capital for opportunity zones easier. We are excited about the future of the industry and plan to utilize these recent developments to benefit all of our shareholders and further grow the company.
Operationally, the foundation we have laid over the past few years has positioned the company to generate outstanding results for the foreseeable future. Our communities continue to report strong sales demand growing occupancy, and more efficient operations. We continue to develop our vacant land, which over time will increase the value of our communities and our company. We plan to be active on the acquisition front as compelling opportunities become available. [COMPANYNAME] is poised to grow the company in our earnings because of our past achievements and the efforts of our sensational team. Managing a large portfolio of manufactured housing communities is not an easy task.
We value all of our partners, bankers, shareholders, and residents Each of you is a critical part of our current and future success.
Operator: We will now begin the question and answer session. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And your first question today will come from Gaurav Mehta with Alliance Global Partners. Please go ahead.
Gaurav Mehta: Yeah. Thank you. Good morning. I wanted to follow-up on your comments. I think you said that you're not updating 2025 guidance. Does that mean you guys are withdrawing the prior guidance or the prior guidance still holds? The low end of the prior guidance should hold based on, you know, current results. But in addition to that, I think it's very important that everybody understands manufactured housing, there's gonna be BT and AT. BT stands for before Scott Turner, and AT stands for after Scott Turner. And Scott Turner and HUD are working on dramatically improving the finance available to the retail customer. We remain incredibly optimistic about our ability to sell homes, increase gross sales, and increase profits.
And based on all of this, we see no reason to change guidance at this time. And so we're leaving guidance with the statement. Maybe we'll hit the low end, but nobody knows that because we've built great expansions and great locations and new communities in great locations. And, you know, 1¢ equals $840,000. We're trying to make a lot more than that. So let's see what happens.
Gaurav Mehta: And so you know, what are some of the, I guess, the drivers of, I guess, you know, the change, the you're, I guess, not so much confident in the prior guidance? Like, is it the capital that the debt you guys read and timing of the deployment? Or, I guess, anything on the rent growth side that you guys think?
Samuel Landy: Well, go slow. We are confident in the low end of the guidance. Okay? We're very confident in the low end of the guidance. The chances are in the third and fourth quarter, we'll grow earnings per share, which will get us to the low end of the guidance. Realize we're currently at $0.96 to a $1.04.
Gaurav Mehta: And so
Samuel Landy: You know, based on the quarterly, if we just go up 1¢ per quarter for the third and fourth quarter, we're gonna hit those numbers. And there's a potential of going up more than that. And so, you know, it would be silly for us to change guidance when there's potential we could we could actually get to the higher end because this financing of the retail customer could result in a dramatic increase in the sale of existing rental homes will be all cash to us. So it's too interesting a time to reduce or withdraw guidance.
Gaurav Mehta: Okay. Understood.
Samuel Landy: And then may maybe lastly, on the price of new have you guys seen any changes on where new homes are coming in?
Brett Taft: Yeah. Prices of new homes are about where they've been. No. No material changes there. And you know, I know we hit on it in our in our earnings call script, but we do have about 200 homes on-site, which are just about ready for occupancy. We can continue to make progress getting all of those homes set up. We've got another 265 homes being set up and another 169 on order. Again, those homes we know what gonna pay for them. We know exactly the rents we need to get to hit our 10% return on those rental units. And, you know, as we reported, demand is incredibly strong throughout our locations.
We filled 305 new rental homes year to date. July, we actually converted 81 new rental homes from inventory to revenue generating rental homes. So that was actually most that we've done all year. So we're seeing a lot of positive demand. We should continue to grow rental revenue. We're very comfortable with where our expenses are, and we see our same property results continuing in the right direction. Plus what Sam is saying on the increase in sales. So we're we're very confident operationally that we're gonna get where we need to go.
Gaurav Mehta: Okay. Thank you. That's all I had.
Operator: Your next question today will come from Rob Stevenson with Janney. Please go ahead.
Rob Stevenson: Good morning, guys. Have you finalized your plans for the Connewiga Court acquisition? And how many of those 142 sites are going to need to have their homes removed in that process?
Brett Taft: Yeah. So, again, we're we're happy to get that deal done. It was a long time coming. I think we had it under contract for a year and a half or longer. You know, we worked with the seller to complete improvements on the site. And we do expect to see some short-term occupancy decreases at Connewingo Court. The property is a 142 units. It's currently got a 101 occupied sites. I don't wanna go into too much detail as to what will be removed, but we believe given the demand we see given that, the strength of the market there, that we will pretty rapidly complete the turnaround process and start to grow occupancy there.
That should not be a long-term, value add plan. You know, year or two years, we should have that property where we want it to be.
Rob Stevenson: How much do you expect to spend on the upgrades to the community infrastructure, not the rental homes and stuff like that, but anything that you're planning on doing in improving the community. How big of a CapEx spend is that likely to be?
Brett Taft: Yeah. So, you know, we're we're out there getting bids basically to complete some of the common areas, pave the streets, you know, the news is the water and sewer lines have been completely upgraded, through by the seller before the acquisition was completed. So we're really just working on roads, possibly some amenities, and, you know, more minor items. The bulk of that was completed and included in the sales price.
Rob Stevenson: Okay. And then are there other than this property, are there any others where you're spending any notable dollars for repositioning other than just to add rental units? Or is that process of the rest of the portfolio largely been done at this point and spent? The capital budget for the communities you know, to upgrade them is approximately $20 million. And that gets done through the course of the year. So there's still work to do.
The reason we keep pointing out that the appraised value went up so much in the refinancing is, you know, if you look at our twelve month increase in same property operating income, and you put that at a five cap, then you subtract the investment in the property, the increased value to the company is a $180 million or $2 per share. So people who are focusing on missing by a penny 840,000, are missing the boat because the, you know, appreciation and it's appreciation and value add is $2 per share, and you're gonna have the same results in the Conowingo properties. You know, things don't happen immediately.
We have to replace old homes with new, add new homes, generate sales income. But it's gonna work out, and it's gonna be a great acquisition.
Brett Taft: And just to highlight what Sam's talking about, the capital improvement budget that we set forth annually does include the other, major capital improvement projects throughout the communities. That'll water and sewer line upgrades, pavings mostly, some cases, adding clubhouses or other amenities, but that's all detailed in the capital improvement budget So nothing outside of that reposition the existing communities.
Rob Stevenson: Okay. But that is sort of essentially maintenance.
Samuel Landy: Right, at the end of the day is it's that those that the repositions are when you buy an asset and then empty it or reduce the you know, get rid of units, etcetera. That's an addition to that. Right? Is it that's not part of the sort of normal capital. That you do? Well, I yeah. So the reason I don't see it that way you know, maintenance is snow plowing, fixing potholes, repairs and maintenance to rental homes as they become vacant. Capital improvements give us the ability to increase rents and profits. That's repaving the streets. Replacing water lines, sewer lines, changing the signage. It's it's major improvements to the property. That add value.
So there's a separation between the two. And our policy is to continually upgrade communities. We have homes in there. They might last fifty years. Well, then we replaced them with better homes. And the exciting thing now is we may replace them with larger homes two-story homes with we have ability to really create affordable housing, but with high-quality housing, and the same thing with the operation of the park. People always view that if you have one person in the office and a maintenance man, that's for Park. We don't mind having two in the office and two maintenance people.
Our policy is to upgrade and upgrade and provide affordable housing, but high quality housing so that we improve the image of the of the business.
Rob Stevenson: Okay. Last one for me, Anna. How did the $5.085 that you got on the Israeli bond deal compare to where you could have priced the deal here in The US?
Anna Chew: I think if we look at The US pricing, it would have been higher if you look at other people's unsecured debt, and those are for people who are like, we in Israel, we obtained a double a minus rating from, S and P Merlot. We wouldn't be able to do that here. Because here, they depend a lot more on unsecured debt. And because we have Fannie and Freddie, and the other and the GSE financing, at pretty low rates and pretty nice amortization, etcetera, we don't wanna give that up.
Samuel Landy: My comparison was the Vornado secured debt. And our unsecured debt is at a lower rate than the Varnado secured debt.
Rob Stevenson: Okay. And then I guess the follow-up there is, I think that at the end of the day, did this Israeli bond deal is this basically prefunding the call it, $70 million of mortgages that are in the 2025 maturity schedule on the supplemental, or are you planning on doing something else with that?
Anna Chew: We are planning on doing other things with that. We are planning on refinancing some of the communities, not all of them, through the GSEs.
Operator: Pardon me. This is the conference operator. It appears we have lost connection to our speaker line. Please stand by while we reconnect. You for your patience. Pardon me. This is the conference operator. I have reconnected the main speaker line. Please proceed.
Anna Chew: My apologies. I wasn't sure where I left off.
Gaurav Mehta: Rob, can you hear us? We will go back to, you know, the phone cut out, we don't know how much of our answer you heard, but we can go back and repeat it if that's where we are.
Eugene Landy: Sounds like this phone's not Pardon me?
Operator: One moment, please.
Eugene Landy: No.
Operator: Go ahead, Rob. Your line is now open.
Rob Stevenson: Hey, Rob? Yes. Can you hear me now?
Anna Chew: Yes. Thank you. Sorry. We had some technical difficulties.
Rob Stevenson: Yes. I think you were saying, Anna, that you were gonna take the $70 million and do some with HUD and some other do something else with that debt as well?
Anna Chew: Yes. What we, anticipate is we anticipate we refinancing the other not all of the other communities, but only some of the other communities. So we anticipate another $70 million, I believe, in total, between HUD or really Fannie Mae and additional bank. What will happen is we will have probably about three additional communities that will become free and clear.
Rob Stevenson: Okay. That's helpful. Thank you.
Anna Chew: Right. And as I said, in any one given year, we need about a $120 to a $150 million in new capital. So in addition to any acquisitions that come about so we wanted to make sure that we had enough dry powder to take advantage of those acquisitions. We see that it is open opening up. We see some communities coming for sale. So we wanted to make sure we are able to take that advantage.
Rob Stevenson: Okay. I guess as a follow-up to that, is there anything that you guys have under contract at this point? Or think that is likely to be, closed in the next, you know, six twelve months here?
Anna Chew: Of the contract? We have we're working on a few deals. We don't have anything under contract at the moment. We do anticipate putting a few properties under contract in the coming months it's possible that some close before the end of the year, but given that they're not actually under contract right now, it's uncertain. We are pretty happy with some of the deals we're seeing on the acquisition front, so I would expect us to grow the pipeline shortly. But given that nothing's under contract, I wouldn't want to guarantee anything. Correct. It's important to note as we, you know, refer to old on in our presentation. We need capital for the additional rental here.
We need capital for the capital improvement. Sales are accelerating and we use our own money to finance those sale. So you need money for that, and then you take it then the number of lots we refer to that we're constructing and that cost is approximately a $100,000 per lot. And then you look at how many lots we have in the approval process, so there's a lot of need for capital, and a common criticism was we were using the ATM at a low stock price. We were using the preferred at a high interest rate. And now we shifted gears and went to debt at a very favorable interest rate.
Operator: And your next question today will come from Craig Kucera with B. Riley FBR. Please go ahead.
Brett Taft: Actually, we're the Lucid Capital Markets, but thank you. You know, you guys did a really good job of keeping a lid on same store operating expenses this quarter. Yeah. Sure. Same property operating expenses did come down in the second quarter, which we're very happy about for the year. Same property operate or operating expenses are 41%. Same property for as compared to last year at 41.9%. So a nice decrease there. We also know, as we'd indicated, it was a really rough winter, and we had a lot of elevated snow removal costs. We anticipate same property expenses to be in a similar range to where they work, which was growth of 4.7% over last year.
They may increase a little bit, but, you know, as we've told everybody throughout the year, we expect our same property expense growth in the five to 7% range. Know, certain areas, we're looking at bringing on additional maintenance staff and, you know, things like that. But, again, we do anticipate an acceleration in occupancy growth. Would expect our rental and related income to grow more than the 7.8%. So even if operating expenses pick up a little bit, we anticipate community NOI being in that, you know, high single digit, low double digit range. Got it. That's helpful.
Changing gears, Sam, in your commentary, you mentioned that you might be looking at doing maybe closer to 700 to 800 home deployments this year. I think you know, earlier in year, you were thinking you were pretty confident you'd hit 800 Are you are you seeing any supply chain disruptions from the manufacturers? Or is it just really things are just going little bit slower than initially expected?
Samuel Landy: No. I don't think anything's going slower. The only the only thing possibly going slower know, setup crews are a little bit of an issue, but we can get through that. And again, we, you know, we remain confident. You know, we wanna be conservative 700 to 800 unit. Again, I would focus on the announcements coming from HUD pertaining to their exchange policies as to you know, no frames on the houses, which allows you to go to two-story adding significant value to many lots. And programs they are working on today to result in people being able to buy their existing home for just 3% down with low interest rates. So the not finalized yet.
But you know, as I've always told you, 2001 was a major blow to manufactured housing when we lost the securitization of manufactured home loans. It got far worse in 02/2009. When the ability to pay laws kicked in, industry shipments fell to 40,000. You know, Scott Turner, the HUD secretary, is working on reversing all of these things, improving the retail financing, improving people's ability to get new communities approved. So we remain very optimistic, especially about our ability to sell existing rentals at a cash profit. Because these new loans will generate cash.
Eugene Landy: Yeah. And, Sam, we should cover no tax on tips.
Samuel Landy: No tax on tips is huge. So you have to understand that, you know, 30% of your income is what qualifies you for the loan. So the new rule, $25,000 in income can be tip income that you're not taxed on. So you pay FICA taxes. But, anyhow, you pay no other taxes. So $25,000 in income on a 6% amortization twenty five years is a $100,000. So right now, with a letter from the employer, the restaurant, etcetera, saying this person has earned $25,000 tips We think we will soon be able to qualify them for a $100,000 more in buying power they have. And if it's not a and it's not $25,000, it's $12,500.
Then they're gonna qualify for $50,000. So this is absolutely the hugest development which is why I keep harping on it. And why it would be silly to change guidance based on $840,000.
Craig Kucera: I gotcha. Changing gears, I'd like to talk about your interest income. There was a sequential decline from the last couple of quarters. That just a function of some movement in your cash balance on hand throughout the quarter? Or have any adjustments been made to rates at finance?
Anna Chew: Absolutely. What we've been doing is we raised the cash, and then we do put it into money market. But, again, when we use then we use the cash, but also rates have come down a little bit.
Craig Kucera: Okay. That's helpful. I guess, finally, how you mentioned sales were accelerating. You know, how are they trending here in the in the third quarter? Is it, you know, a similar increase relative to the second quarter or maybe even better? It is possible that it's better. I mean, you know, Sam laid out a lot of reasons why it may continue to improve. But with everything, basically, a similar sales environment to the second quarter, we're still seeing growth as we, get some more positive traction at our expansions. We actually have over $5 million in our sales pipeline right now, which is an outstanding number, and I'm not quite sure I've seen it that high before.
So that's very positive. We're also working through some older homes at some of our New Jersey properties. As people move out, we're able to recoup those lots and put new homes on there and generate sales profits and reset those rents. To market. And we are very happy with the progress we've made at our Cinnamon Woods expansion. We've got some expansions coming online in Tennessee, and you know, we're really optimistic about the future of sales. You know, just pivoting back to the question about rental homes. Briefly, I mentioned it earlier, but I wanna mention it again.
In July, we converted 82 homes in inventory to new rental homes, which was the most we have done all year. If you go back a few years when we did 1,100 rental homes, we were hitting 80 or 90 a month. So it's really nice to get back to that 80 number. With the homes we have being set up in the right locations and the demand, we think we can continue So we're we're hopeful that we get up to the 800 number, but, you know, we put the range at seven to 800.
Samuel Landy: I just wanna repeat this again. We own 10,600 rentals. We bought the first rental units in 2011 at $40,000 apiece. Based on people's current rent, the sales price of those homes is gonna exceed $60,000 on the oldest homes. And these new policies, and there's a couple of them, Number one, we've got the licensed mortgage loan originators to agree that your monthly payment, what you're paying for housing, if you're in a $2,000 a month apartment and you're moving to a $1,000 per month manufactured housing, that carries more weight than debt to debt to income or percentage of income. So that's huge. That's a huge, huge development in the last quarter.
And then we just talked about how no tax and tips is gonna increase their income how I didn't talk about yet, How we could credit their existing down payment on the rental to down payment you know, their existing security deposit on a rental to down payment on a sale. So all of these, you know and I don't know exactly how quickly with our lender we can you know, when I say our lender, with our mortgage loan originator, how quickly you can implement these new policies.
We're working on But as soon as those get implemented, as I see it, I'd be shocked if you don't sell a 100 rentals within six months at $70,000 a piece, so $7 million in new sales was the sales profit. Okay. Great. Appreciate the color. Thanks.
Operator: Please go ahead.
Brett Taft: We're going back to the guidance again. I know we've touched on it a bunch, but it seems like based on some of your earlier commentary that maybe the ability to hit that guidance range is contingent on kind of ramping up sales of homes. Is that fair on my end? And I guess what kinda level of sales would you need to see to make guidance achievable?
Samuel Landy: Well, I wanna back up. Just based on increased rental income, right, I think it's very realistic to expect a quarter for the fourth quarter. That's just based on increase in rental income. Then throw in the potential for increase in sales income. Did I get everything right? Okay. I mean, there's there's a lot of variables there. There's there's the home sales there's the speed with which we complete expansions, financing cost acquisitions. So Sam talked about the confidence in hitting the lower end of the range But to your question, yeah, all of those things and others are going to impact whether or not we can't hit the higher end.
Samuel Landy: Yeah. So it sounds like maybe the lower end of the range is kind of achievable through kind of just run rate business, and then if you accelerate sales and, obviously, the direct flow through in terms of net profit that comes from that. You could reach towards the higher end of the range? Is that kind of a fair way of characterizing it?
Gaurav Mehta: It's a fair way of characterizing it. And as we all know, we're making forward looking statements, we could be wrong. There could be a major recession. We should think it could rise but assuming things go as we see them at this moment, I think that's a very realistic statement.
Craig Kucera: Okay. With that in mind, I guess, kinda your net income from selling homes even though you had a record kind of top line quarter, was down a little bit. Was that resulted is that the result of anything that was kind of maybe
John Massocca: I sorry. Timing wise, did you build that inventory? Or I just kinda what was kinda driving maybe the margin you know, if I look at kind of home you know, sales of homes versus kind of what the cost was for selling them, you know, margin kinda compressed a little bit. But I was wondering if that was driven something that was timing-wise or if there was something else going on there.
Samuel Landy: On all expansions and new construction, when you get to the last phases, you earn the biggest profit. You have to jump start these things a bit. So the first phase may have lower markers. Know, that's exactly right. Last year, was a 38% gross margin. This year, went down to 32%. Historically, by the way, we're very happy with 32%. So know, the sales revoke to us are fine, but, yes, that Cinnamon Woods and some other expansions we opened, you know, we were selling at a 20% margin, which was reducing that overall margin down to 32%.
But know, as we pointed out, the growth in the top line was there, and as we get further into these expansions, we do expect that gross margin to increase back hopefully, into that 38% range, but time will come.
John Massocca: Okay. And is that just kind of, like, you know, to borrow terminology from, like, the multifamily and hotel space, like, a hedge and bed strategy where you wanna people you know, in initial phase, you kinda have to offer a bit of a discount. But as the community fills up, you're you're able to be a little bit more aggressive on pricing.
Samuel Landy: Absolutely. A 100%. People are fearful when you first open. They don't know what's gonna happen. You have to establish that, you know, you're gonna fill this place home values. Are consistent or going up. And then our history and our experience is the last phase sells out quickly at the highest price.
John Massocca: And then any kind of bigger picture, you've mentioned HUD a bunch on the call. I guess the positive catalysts we're expecting to see there should that flow through in the 2025 results. I mean, it seems like by the time, you know, government 2026 kind of tailwind, but just was kinda curious why the confidence that could be so immediately impactful.
Samuel Landy: These things have already begun, and the innovative Housing Conference is in early September. And you know, you know, we're we're the greatest form of quality affordable housing with communities for sale or rent, we have a HUD secretary that recognizes that. We have both in the senate and the congress who recognize that. We just think that the atmosphere at this moment is better than it's been since the 1990s. So we're we're very optimistic.
John Massocca: Okay. That's it for me. Thank you very much.
Operator: We'll conclude our question and answer session. I would like to turn the conference back over to Samuel Landy for any closing remarks.
Samuel Landy: 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 November with our third quarter 2025 results. Thank you.
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