UMH Properties Inc (UMH) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome to today's UMH Properties, Inc. first quarter earnings conference call. As a reminder, today's conference is being recorded. At this time for opening remarks and introductions it is my pleasure to introduce today's host, Ms. Susan Jordan. Please go ahead, ma'am.

Good afternoon, and thank you for joining us. I would like to take an opportunity first to introduce our management team. With us is Eugene Landy, our Chairman of the board; Samuel Landy, UMH's President; Anna Chew, Vice President and Chief Financial Officer; and Michael Landy, Vice President, investments.

I'd like to take a moment and read the Safe Harbor statement. This is a conference call regarding UMH's first quarter results. The call is being recorded and shareholders will be able to access it on our website. On behalf of UMH I would like to inform all participants that certain statements 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. Although the Company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can provide no assurance those expectations will be achieved. Factors and risks that could cause actual results or events to differ materially from expectations are contained in the Company's annual report on Form 10-K and described from time to time in the Company's other filings with the SEC. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Having said that, I'd like now to turn the call over to our Chairman, Eugene Landy.

Good afternoon. I am Eugene Landy, Chairman of the board. UMH Properties is now in its 41st year of operations. UMH owns and operates 28 land lease manufactured home communities. In the year end 2007 UMH had funds from operations of $6.2 million. If we add back the $1.4 million nonrecurring loss on security transactions, we would have had a -- an adjusted funds from operations of $7.6 million in the year-ending December 31, 2007. Management is projecting for 2008 $8.2 million in recurring funds from operations with $0.75 a share. This is adjusted on the same basis as the prior-year's calculation. We emphasize the numbers are neither Generally Accepted Accounting numbers nor [narrowly-defined] funds from operations. They are used only for comparability of what we believe to be our normalized earnings.

Nonrecurring investment losses are important factors to be considered by investors. The first quarter numbers will be improved by eliminating the volatility of our treasury securities position. We will also reduce our manufactured housing inventory. We are reviewing possible expense reductions. Our year-end projections do not include increases in occupancy. We have been predicting substantial increases in sales and occupancy by reason of industry-wide improvements in manufactured housing's competitive position as compared with conventional housing. We continue to believe these favorable changes will occur.

UMH in normal credit times would consider maintaining the $1 dividend pending the industry-wide anticipated turnaround for manufactured housing. UMH has more than 1,000 vacant sites. Improved occupancy will improve earnings substantially. The first quarter's occupancy was stable. We are experiencing at least a seasonal increase in sales. Considering all the factors management will recommend to the board of directors a dividend of $0.18 for the second quarter. We feel that this represents a more conservative and predictable level given the current stresses in the capital market.

In our April shareholders meeting (inaudible) increasing efficiency by combining with our other lease Monmouth Real Estate Investment Corporation. There are advantages and disadvantages to combining these two affiliated companies. The current price of shares UMH shares make it an attractive investment. We believe it logical for Monmouth Lease to increase its holdings of UMH at this time. Rather than go into further details on numbers and things, I think it appropriate that we open the -- have the operator open us up for questions. Hopefully there's some questions. We understand there's 31 people on the line. Operator?

Mr. Landy, are you still with us?

Yes, I'm still here waiting for the first question.

(OPERATOR INSTRUCTIONS) We'll now take our first question.

Hello, can you hear me?

Yes.

Hi, this is Bill Frasier, private investor. I had a question on the number of vacancies. You said something about 1,000 vacancies. That a normal number or is that elevate, from what you've seen in the past?

Occupancy is now stable. Sam, can you give us -- my understanding is that there has been no decline in occupancy. The reason I referred to the first quarter earnings as disappointing was only in the thought that we intended to have a substantial increase in occupancy, and occupancy is basically stable, but I don't have the exact numbers.

I guess I should have said the word not vacancy, but number of available sites that are unrented. I think you said at about 1,000? You mentioned 1,000.

Well, we have approximately 7,000 sites. Don't hold me to that exactly. It's 100 or 200 sites less than that. We're continuing to build new sites and there are approximately 1,000 vacancies. The New Jersey parks are substantially full, the eastern Pennsylvania parks are substantially full. I could be more specific if you;d like. Occupied rental units since January 1st are up 27 units. Occupied lots are down 32 units but inventory decreased from 210 to 190, so 20 -- we're really only down 12 lots is the way to count that. Our March rental income is plus 7% over a year ago. That means our rent roll -- monthly rent roll is up 7% in March from one year prior to that. And just to be specific, there are one, two, three, four, five, six communities are 99% occupied, and five other communities are over 90% occupied.

Well, that's excellent news. Is the -- where you have vacancies, is it self-managed, or do you go to real-estate agents in the local markets to advertise the available slots?

It's self-managed and the way it used to work was that there were manufactured home dealers who used to sell homes into our parks. In the last five or seven years the number of dealers has been greatly reduced, so we have to do our own sales. But we now do our own sales into our communities and sales the first quarter were weak but now they're coming back to a more normal level. We anticipate doing at least $1 million per month in sales. The first quarter of this year was not so good but generally that's what we expect to do.

Okay. Do you also use your inventory and perhaps rent out the site, which would include the land and the mobile home?

Yes, we do. The inventory is purchased for sale, but on the single-wides there's very strong demand for rental units. We are trying not to let our number of rental units go over 10% of the total occupied sites, but, in fact, the demand for rental units is extremely strong, and the only thing slowing down sales as opposed to rental is it's very hard for the buyers to come up with the 10% down --

That's understandable.

-- and that's the tough part.

right. Now it seems that some of the operational weakness is caused by the futures contract, and I know that was a hedging transaction. Is that future contract still open?

That contract is still open. Michael could give you the exact numbers, but we lost about $650,000 the first quarter and we're probably up $315,000 the second quarter, and everyone wants me -- even though -- the way it's supposed to work we have $70 million in mortgages, we roll over $5 million, $10 million in mortgages a year. It's supposed to work that if interest rates go up, the hedge -- shorting the treasuries would help us, but it hasn't worked that way because the market has gone in the opposite ways at the same time. Interest rates have gone up on mortgages, spreads have widened. At the same time we've lost money on the futures. So we've decided to get out of the futures at the appropriate time. Obviously if we get out in the next few days we will have $350,000 or $400,000 in gain in the second quarter, offsetting partially the $650,000 loss in the first quarter.

That's great.

Neither of which do we think is relatively material, but we're going to simplify our financial statement.

Okay. As a long-term holder I know that you've made some terrific investments with preferred securities in the last investment cycle, and I know you were taking -- you've been taking some gains in the last few years. Do you see continuing to take gains in the preferred securities portfolio or actually start to invest in that area again?

Well, UMH at one time had $40 million, $45 million in securities. We always point out to people that we own 7,000 sites. We have several hundred million in real estate. The amount of the securities is a small portion of our assets. We reduced that securities when REITs were in favor and prices went way up. We cut the portfolio down to as low as $12 billion and Michael, what do we have at the present time in securities? At the present time $25 million in securities. Yes, we have $25 million in securities and overall we think they're good investments. But what people don't realize, the accounting system today is unusual in that if you have a loss of more than 20%, you book it, you don't book the gains, and if the loss disappears then you go back up, you don't book the revision in the gains. So it makes it a little hard for investors to read our financial statements, and I think we had -- what did we have in securities losses the first quarter? Did we have any?

We didn't have any in the first quarter.

we didn't have any. So basically we're happy with the securities portfolio right now. The margins are terrific. We're borrowing money at 3.75% and we're investing in securities yielding 8.5%, and we think if we can increase our portfolio $5 million or $10 million it will help our earnings and be an additional way of making some money for UMH.

Okay. I'll ask one last question and then I'll let someone else get on the line here. Do you see further expansion in the existing home sites, or is there a potential for expanding more sites into the available acreage?

There is a lot of potential for expanding, but I would have to talk for hours on this subject so I really wanted to --

But the potential is there, that's the key point?

We have in our estimate, $12 million in vacant land, and vacant land is not usable unless you get all the entitlements, they call it. And the entitlements take years and years and tons of money, and at the present time when you're sitting with 1,000 vacancies, we have to make that a secondary priority. Some day -- as you know, I'm very bullish on the manufactured housing industry. I think that ultimately it's going come to back. We started in an industry that always was 95% occupied. We're now 82% occupied, both our Company and the industry is. When affordability comes back into style and we fill the parks that land will be very valuable, but it's not for 2008, 2009, or maybe even 2010 now.

Okay. Thank you very much for the information, and thank you for hosting today's conference call.

Thank you.

(OPERATOR INSTRUCTIONS) Caller, your line is open. Please go ahead.

Yes, this is Richard Bowman. I've been an investor for long time also. I just -- is there any other way to hedge the mortgages other than using -- you must be using the ten-year treasury or the 30-year, something that's more like it?

We're just not going to hedge. We basically have fixed-rate mortgages. Sometimes the banks make us use a variable and buy a -- what do you --

Interest rate swap.

-- interest rate swap, which also caused accounting problems for us. But basically we just won't hedge because it produces unnecessary complications. It's so hard to explain to people, if you have a $400,000, $500,000 loss, people -- in a quarter, people multiply that by four, which makes no sense, but they don't understand that. And if you have a $500,000 loss in a Company our size, it's not even $0.05, but instead they multiply it by four and look at the earnings. So again, to simplify it, I like the idea of hedging but -- because I can see that interest rates may skyrocket some day and we'll be paying 7%, 8% for mortgages it would be nice to hedge. But we're going to get rid of the hedge in the interest of simplification. Incidentally, we don't let the banks force to us do interest rate swaps any more. Even if the costs another quarter of a point, we take a fixed rate -- interest rate on our mortgages so we don't get into swap accounting, which is highly complex.

Okay, thank you.

Thank you.

We will now move on to our next question.

Good afternoon, it's Joe Helmer from Caldwell Securities. Am I on? Hi. My first question is -- relates to your letter to shareholders on March 13th -- and I've since learned that this letter's been adjusted somewhat -- but there was a sentence in there when you were talking about the earnings shortfall to cover the dividend payout, and the paragraph concludes by saying UMH's balance sheet remains strong, and therefore we are confident that we have the resources to fund the shortfall in our dividend. And these fluctuations in hedging aside, to me your business seems -- your underlying business seems much more stable -- or at least stable enough to foresee these things two or three months out. Can you comment on that sentence in the letter and what's happened between March 13th and today, sometime in May?

Well, as you may know we're in the middle of a credit crunch, which hasn't really affected UMH too much, but it affects our thinking. And we at one time thought we had a tremendous number of parks free and clear that we could raise very substantial amounts of money, and you may want to know today that 75% of the loans are Fannie Mae and FHA today and it's very hard to get money from the conventional sources. So we've been experiencing -- I don't want to overemphasize the difficulty, but we're not as sure that we can raise money as we were just a very short timing ago and we just don't want to depend on the marketplace to refinance for our cash needs. UMH does not after lot of cash needs and most of those cash needs very legitimately should be financed. If we sell $5 million in homes and take back mortgages we should be able to go to a lending institution and borrow borrow against it. If we expand our parks by $2 million, $3 million we should be able to get a mortgage based on the cost of expanding the park. If we pay down a mortgage we should be able, over a period of time, to go back to the bank and refinance.

But we're in the middle of create crunch, and I'm rather conservative. I just don't want to run out of money, and I don't want to be dependent on the bank renewing a line or giving me money. And for that reason, we decided as a matter of being conservative to match our projected cash flow with that dividend. Now we're sorry you read that in the annual report, but if you read the old annual report we put language in there that things may change and we can't update them as quickly as we would want to. It was not an easy decision. We might have decided to maintain the $1 for another quarter, but until this credit crunch is over we have to match our cash flow in and our cash flow out. And I think in the long run it's in the interest of our shareholders that we do that.

Okay, I agree. It seems like sound logic. I just -- from my perspective, the -- March 13th was very close to the date that -- things weren't exactly hunky dory in the credit markets there, either. That was the same week that Bear Stearns capitulated for $2 per share.

And again, both Bear Stearns and one other major company -- Bear Stearns was about to announce a highly-profitable quarter when they went under and so it wasn't that Bear Stearns wasn't making money. They just didn't have the cash to meet the demands, and so we'd like to keep ourselves in a position where we have substantial cash on hand.

Okay, I agree with that logic. Can you tell me what you're do -- I believe that you guys are going to be facing less of a headwind as a result of your potential clients not being able to obtain a conventional home with a conventional mortgage, but can you tell me what you guys are doing proactively to increase occupancy?

I'll turn that to Sam, but I first want to comment on your question, because it's a very good question. We see very clearly -- someone got a Nobel prize once for saying that when something is inevitable it generally happens and what is inevitable in the housing market is that people will turn to the housing that we have that's available. You cannot today buy a home if you can't afford it, and so if you can't afford a $100,000, 150,000, in this area it's a $200,000 home, if you don't have the income -- and it's an amazingly high percentage of the population do not have the income -- you will have to accept more affordable housing, which is our housing.

The second thing is you cannot get a mortgage today without down payment. With all this subprime mess and the mortgage problems they're having anybody who was breathing, whether or not they had a down payment -- in fact, they had charities that would give you the down payment, which was an unusual transaction -- but, anyway, if you don't have the down payment, if you had a $100,000 house, if you don't have $10,000, you're not going to get the mortgage. So you won't get the mortgage if you don't have the income. Even if you have the income, if you don't have the down payment you won't get the mortgage.

And third, you're going to have to document your income. And very legitimately, lots of people work as waitresses, other jobs where they don't have documented income. It's a huge percentage of the population. So you have three different criteria, all of which you have to meet, and so we've been predicting that there's going to be an up-surge in manufactured housing where we'll go from 100,000 units a year to 200,000 units a year. And I have to admit, quite frankly I've been wrong for over a year now. It just hasn't happened and that's why I put in the quarterly report that I was disappointed in the first quarter earnings. I wasn't disappointed that our earnings were so bad. I was disappointed that the turnaround that I long anticipated is not there.

Now with that I'dturn it over to Sam Landy, who'll tell you what we're doing to increase occupancy and to reach these people that we think are out there and that need our product. Each year in the fall we increase our inventory it to the highest amount, which is different than what anybody does, so this year we had approximately 210 homes in inventory in the fall. Winter comes and people can't really set up homes as quickly as they like in the winter, and as soon as the weather becomes nice we usually are the first ones to have turn-key homes available and usually do very well. This year January, February and March from my people out in the field, they say people weren't buying our homes because they couldn't sell their conventional homes and people were nervous about the economy, and so in March we didn't have very strong sales. April and May are okay. But we currently have 190 turnkey homes available for sale, some of which are in markets that we anticipate making strong sales profits. Some of these homes are priced -- just the lots just to create occupancy, but in the New Jersey and eastern Pennsylvania markets we're pricing those houses to make profits.

We have a -- we've put out $20 million in manufactured home paper and we have a line for $10 million in new paper. This line allows us to finance anybody who is declined by the other lenders. Because we own the community, we can manage that piece of collateral better than anybody else can. We've watched Conseco do this, we've watched Green Tree, we've watched banks do this. We are really good at the finance business of manufactured homes. Our $20 million portfolio of loans performs very well. When we finance a person we take 10% down. We require 20% of their income to cover their monthly payment plus their lot rent, but we don't go so much by their past credit history. We understand if they have bad credit if it's explainable. We don't finance people who don't pay their phone bill or their electric bill. But when they have substantial debts that they couldn't pay and they're moving down to a manufactured home and their income shows they can afford it, that's what we're looking for.

If we make a mistake and they can't afford it and we have to repossess the house, it's our on-site manager who originally sold to the them who's watching over the collateral, who takes back the house, usually in a nonpayment of rent case, getting it much quicker than you'd get it in a foreclosure situation, and then we're reselling these houses almost always for at least the amount of the loan, sometimes for more than we sold the house for originally. And again, we're getting strong down payments and we're not finding losses there. Besides that we do open houses, advertising, we dress up the homes for sale, we put banners on them, we've gone to a professional sales staff to hiring people that are more in the sales business than we used to have. Most manufactured home communities use property managers to sell homes. We've moved to people who are truly sales people, and our best year of sales I think we did $17 million and we're hoping to continue to grow that from there.

Okay, thanks. I've got one last question and then I'll let someone else ask a question. Doesn't have anything to do with the quality of the community or the -- is there an emphasis on overall upkeep of the entire community, not just the one lot or house?

Yes, certainly, certainly. We -- all of our communities we strive to keep them in a first-class condition. We've invested substantial sums in upgrading our communities throughout, the roads, the curbs, the sidewalks. We've spent significant money going through our communities, looking for the 30-year-old houses that we don't want in the community any more. And in some cases the person abandoned them, and we could have made a decision to fix it up and keep it in the community, or spend the money to remove it. We're always removing those homes. In the better markets, New Jersey, eastern Pennsylvania, we're buying those houses so we can remove them from the community. And what this does is, a couple things. We wind up with a higher-priced house for sale in the community. It's a nicer looking home, better landscaped, and that's what we're trying to do throughout all of our locations.

Okay, thank you.

(OPERATOR INSTRUCTIONS) We will now move on to our next question.

Hello? Yes, this is Morty Katz.

Hi, Mr. Morty, nice to hear from you.

How you doing, Gene?

Great.

I have a question on what you said that Monmouth Realty might want to buy UMH because UMH is now inexpensive relative to its value. I think that as having been an investor in your Company for many, many years, we like to see the pure play of a company, of what brought the company's business, and in UMH we have the manufactured housing. In Monmouth Realty we have the long-term lease properties. And the course investing, which you're proposing here, we have an example of it where UMH last year bought Monmouth REIT shares at $8.50 a share and now owns a substantial amount of that, which has declined in value by a substantial amount and is now hurting the performance of UMH.

So even though we're trying to fill sites, if Monmouth Realty has a problem with its stock price all the sites you want you can fill but we're going to be losing it it somewhere else. And to go the other way, my question is, if you feel that there should be some benefit in course investing, why not -- and I'm not advocating this, I'm opposed to the, actually -- but why not just merge the two companies and save all the top line -- the top overhead expenses of being a public company, the Sarbanes-Oxley and the auditing fees and all the other stuff and get the economies that way rather than try to cross-invest?

Well, we hav -- as I just stated in my statement in the annual report, we're always considering putting the two together. We think the savings would be between $0.5 million and $1 million. We think that -- in fact things change and sometimes things that we thought might be a problem disappear. We believe that in Monmouth REIT we could buy $100 million, $200 million of net leased industrials leased to investment-grade tenants if we had sufficient capital, and if you merged the two companies we might be able to redeploy the capital into net leased industrials. The complexity of putting the two together is always a negative.

On the other hand, running small cap companies, as we see in the case of (inaudible) is no fun. It's a tremendous amount of management effort [put on things that are for them then productive], but they're certainly not directly productive. The time we're spending now on the UMH situation -- in fact before, the meeting started I said what's the problem in UMH? There's no problem other than the stock price that people are reacting precipitously to a very minor cut in the dividend, and so we've had to spend the last two, three days on the problem. We're aware of your objections to our investment portfolio. In Monmouth REIT, we probably have $450 million in properties and we'll get it up to $500 million. Michael, how big is the securities portfolio in Monmouth REIT? About $23 million. About $23 million and I don't think we're going to take it more than $30 million, $35 million, so we're not going to make the securities portfolio at Monmouth REIT more than a minor factor. On the other hand -- in fact, our stated policy is we don't cross-invest except if it's compelling and right now we think the stock of UMH is compelling. And the only reason we haven't put some money of Monmouth REIT into UMH yesterday and today is that we felt we had to have this press conference first, and we understand we have to wait a day or two for the information to be disseminated, then we plan to -- if the stock is available at the right price, to make an addition to the stock. But we really don't think it's a major item. We buy buildings for $8 million, $10 million. If we buy $500,000 worth of stock we don't think that's a major item.

I just want to comment on that. You said that there are opportunities for Monmouth REIT to invest in properties, and we don't have the money to do that and now you're saying we're going to use some of that money that we don't have to buy stock in UMH. And based on past experience, they say that something like this is the triumph of hope over experience. We bought a million shares of Monmouth REIT at $8.50 and it's now $7.31, and, yes, it would have been nice if it was more, but all the compelling arguments don't change the fact that it didn't work out. And we're saying it's a compelling argument now for buying UMH with Monmouth REIT funds. I think that as an investor I would prefer to see the companies stay focused on their core businesses and not try to second guess what we, as shareholders, want to invest in.

Well, that's a different magnitude. We need to do a $100 million package in buildings today. The lenders are getting more difficult, and they want not 25% down, they want 30% down, so I'm in the process of trying to find $30 million to buy $ 100 million in properties and if I own another $0.5 billion of UMH it's not going to change anything, particularly when you can borrow half of that from your account. So we're considering both things, and Morty, I'll get together with you and discuss the -- it's a very complex subject putting this together.

Okay, I appreciate it. It's a very, very useful discussion and I think it's very nice of you to do it. All the best of luck with both of the companies, because, as you know, we are with you on everything.

We all appreciate that. Thank you.

We'll now take our next question.

Hi, this is Jim Morton at Rothman Miller. Hello?

Yes, Jim, nice to hear from you.

Good to talk to you. We have half our investment committee here.

Oh, okay. Well, we're hopefully giving you some reassurance.

Well, we're -- well, let's see. I just want to ask as a devil's advocate, and I had the thought in the back of my mind and I know when things get tough you tend to get negative, at least that's the psychology. But what does happen if -- for example, talk a little bit on a macro basis about available rental units right now, about lower cost housing, not manufactured housing, but lower cost housing. What's happening with that? Is it possible that the supply of those things could keep the demand for manufactured housing low maybe for an extended period of time? Tell me why I'm wrong.

Frankly, I don't even understand the question.

Okay. If there are other alternatives to buying manufactured homes, such as rental properties, apartments, town houses --

Well, let's take -- your rental apartments are direct competitors of ours. They're 95% occupied, which if you ever ran apartments 95% occupancy is full occupancy, because the tenants turn over every year, year-and-a-half and you've got to paint and clean, so you can never run 100% full in apartments. So they're fully occupied. They are -- and one thing I love about REITs is the transparency. You can just read the annual reports of the apartment REITs. They're increasing their rents 4%, 5%, 6% a year. So our competitors down the street are charging $900 month, they're going to increase rents $45 a month, and they want $900 -- am I right on this, Sam -- $900 first months rent and $900 security, so you need $1,800 to get into the apartment, and we think -- and I'll ask Sam this, are we competitive? It all comes down to geographic location. In New Jersey houses and town houses, they're all over $200,000 -- numbers so low you don't even hear of it in these areas and we're selling a house for $130,000, and less. Our monthly payments in the New Jersey market, covering your lot rent and finance payment is $1,300 a month, versus apartments and homes for sale. They're higher numbers. May I interrupt one thing. You've got to have comparability. Our manufactured homes are three-bedroom units. Don't compare and so we're dealing with families that need three bedrooms and two baths. So you can't look at a one-bedroom efficiency and say you can get it for less, because nobody wants to live with three kids in an efficiency and one bathroom. In our strong markets the markets' 90% occupied, 99% occupied. The reason they have such high occupancy is the cost of the alternative housing. Now we go out to Ohio where we are experiencing weakness, and the weakness is caused -- it was caused the past couple of years because people who normally would be our customers were able to buy the conventional homes that they may not be able to afford. And you're talking about small differences in monthly payment. If I could have them in for under $1,000 a month and they bought a house and it's $1,400 per month, that's not a huge difference except they can't afford that $400. They were able to get in those homes, they were able to stay in those homes a couple years, but we expect they'll be coming back to us. Now, again what I'm saying is, the only areas that were weak, it's Ohio, it's southwestern Pennsylvania, Belle Vernon, Pennsylvania, and it's northwestern New York.

And it's not so much the comparable housing as it is the local economies just are not generating increased population growth or increased jobs. That's what we need in Ohio to help us. Northern Pittsburgh we had vacancies but they're starting to fill and we're doing much better. Comparable housing costs are rising so that's -- our demand for rental units is extremely strong in the north Pittsburgh market. So that's what we see. I don't -- there is no less-expensive alternative housing than a 14x70 single-wide manufactured home. The house costs us about $28,000. As a rental it could be -- a three-bedroom, 14x70 house could be for rent, brand new for $650 per month. It's hard for anybody to compete against that. And so our rental units -- all of our new rental units are full, and we've just made this decision that we didn't want the number of rental units to exceed 10% of our total occupied lots. But the demand in almost all of our markets for these rentals is very strong, and what we're trying to do is sell off the older rentals so we can buy new rentals, because there's people waiting on line for the new rentals.

Okay. Thanks. I just had two more -- I don't know how quick the answer would be, but number one is, you guys were using PNC for your credit line before, and now you have a new one with the Sun?

We have a -- our Sun line is for our financing of homes. The PNC line was primarily for acquisitions.

Oh, okay. So you had them for two different purposes?

Right.

Okay.

We're very happy with getting Sun bank. We must have the money to finance sales. That's the key, because the competing dealers said it's very hard to get financing for manufactured housing and we've now gotten a $10 million line against $20 million worth of paper. Hopefully when we put out the $10 million we'll get another $5 million and then we'll get another $2.5 million on that, and we can continue to finance sales for the indefinite future.

Gene, this is Peter Miller.

Yes, Peter.

My question is, a little while back you put out this -- you'll get a -- I think $1.5 million bonus if you can sell the Company for $16 or more?

My personal interest was that in case I had to negotiate with a third party to buy the Company --

Right.

-- I did not want to be in the position at that time of negotiating with a third party and also negotiating whatever severance I would have, and so we went to the compensation committee, and they came back with the -- what I call the $0.10 proposal -- I think that's what we wound up with, because 11 million shares and I get $1 million, I think, if we sell the Company for $16.

Well, if you sell it for $16 you're entitled to the money, though. (LAUGHTER)

I'm glad everybody is happy on that. Thank you. I have to tell you that we think -- we did think, when we set that price, that it was going to wind up to be twice market and we thought that price had some relationship to what the Company was worth.

Okay.

Gene, what of -- some of your competitors, whether they might -- how close they may be as competitors, I see four companies and we had some discussion when we were out there about some of these. For example, American Community Properties Trust, the American Land Lease, Associated Estates Realty, Roberts Realty Investors, what company or companies would you consider yourself closest to from the standpoint of if someone just said which would you be the most like, what companies would you say you -- would be most similar to you, to your operations?

Well, I guess it would be Sun -- Sun Communities. American Land in Florida is basically in Florida and Arizona. They build lovely retirement communities, but they're specialized in those and they build to generate sales. The Equity Lifestyles, which is one of the biggest, has really shifted their focus to travel trailer-type resorts. Very high end things [to traveler village] is probably a big percentage of their business. And they're really out of the manufactured housing business as far as families are concerned. They're manufactured homes in Florida and California, and are very high end. So we would be most like Sun Communities, which is about ten times our size.

Okay, thanks. I'm glad to hear that if you could rent a lot more of these units now that you're trying to keep that rental down to about 10%, because I know when we were out there the particular development that we went to the people who ran this -- it was a couple -- they knew everyone there. There were about 300 families there and they knew most of those people. And I know the higher rate you get as far as rentals go that you have less control over the quality of people you have coming in there.

Absolutely true and we're well aware that a lot of value will be built by creating a high-end community. And so we really want to have owners and not renters who take good care of their homes and who stay ten, 15 years and not a year-and-a-half.

Okay. Thank you.

Thank you.

By the way, people on the call, we run a very small company here. I guarantee you if you call directly at any time you will get in to talk to the President or you'll get to talk to the Chairman of the board or people will talk to you and we are happy to have our public relations people answer your questions.

This is [Robert Ostreg], I'm a private investor. I have a couple of questions. The first question I would have is that you're cross investing -- and we had some discussion about this before -- but you're cross investing between UMH and Monmouth REIT and it occurs to me that if you look at your cost of equity, the current share price, you're basically lending money from yourself to yourself at some pretty attractive yields. While I appreciate that that benefits the recipient, I'm wondering, have you ever considered leveraging some of the properties that are in Monmouth and using it to repurchase some shares? You're telling me you have mortgage money. You've got an unsecured line of prime, which was what, 4.75% or 5.25%. Maybe it makes sense to start borrowing to buy some shares back.

Let me cover the buying shares back and understanding our problem. Every problem we have in the Company is generating more earnings, generating more dividends, and I'm very confident I can solve. The problem we're having to solve ultimately is that the cost of running a public company today is certainly $3 million, $3 .5 million and if we're going to make $12 million or $15 million, maybe $15 million. $18 million before the overhead, is costing us 15%, 20% of what we make to run a public company. Stating it very simply, we have 18 manufact -- 28 manufactured home communities and it's costing me $150,000 a community to run the headquarters. Now, the way around that is to grow the Company, but this is one of the most difficult companies to grow the assets of.

We run a sister REIT, Monmouth REIT, and we can grow that $35 million a year or maybe even buy a $100 million portfolio. It's very difficult to do a green field development, get the approvals, takes years and years, build the park, sell it, sell it and we work inordinately hard just to add 50 or 100 sites. So I'm really not sure how we can grow this Company faster than the cost of running it and so we are considering and kept considering that perhaps we, either a related merger or other merger, would be done to grow the Company faster. Now having said that, the last thing I want to do is buy back stock. I know you can sit with a piece of paper and see, hey, buying back stock's a great investment. But it takes me away from what we have to do, which is create a company that's going to be $400 million or $500 million in assets and $250 million to $325 million in equity and so I really don't want to go in that direction.

The other thing, to answer you, about lending money one to the other, both of the companies we run are really excellent investments. We look at these investments, we think that over the next six to 12 years we're going to be getting rents that may be double what we're getting today, and I have no doubt that both Monmouth REIT, UMH are excellent investments, and so we don't -- and we invest for the long term. I think ten years from now, whether you bought the stock at Monmouth REIT for $7.50 or $8.50, or you buy the stock at UMH for $8 or $10, will not be meaningful. We will be talking about very, very substantial values in excess of this. When I started the manufactured housing business we charged $75 or $100 a month rent. Today we get $350 a month. The CPI today is 220% over 1982 and CPI doesn't take into effect the increase in land values and the growth of the economy and the growth of the population. So I'm bullish on both scores and we have no trouble with doing the cross investing.

The only thing about it is I prefer investing in other REITs because there's a little more liquidity and I don't want to get too much money in one REIT [we've liked at the first buy], but UMH's investment will turn out. We invested, I think, $200 million or more in Sun. We thought we knew the industry and it was $30 stock was a $2.40 dividend. It's still a $2.40 dividend and the stock went down to $20. I don't like the fact that the stock went down ten points, but I think in the long run it will still be an excellent investment. This mark-to-market and to look at the paper every day to see how well you're doing has some limitations on the long-term range if you're a successful investor.

I think your long range philosophy you sort of share with Warren Buffett and we're not going to complain about that, but I would still say that you need to look on the short term, as well, and in the short term what you are doing is you are borrowing money -- and I understand that's it's equity rather than debt, but you still have to look at your share price versus your dividend and say, the cost of funds and it's relatively expensive money. And I guess the only thing that I'm looking at, since you are willing to do transactions between companies it seems to me that there should be more attractive opportunities to raise capital than paying 9% through a dividend. But you've done an excellent job for 40 years so I'm not going to question you further on that. The second question that I would have, though, is regarding the $10 million line that you opened up with Sun, question number one with regard to that is that I see it as a 2011 maturity so the first question I would have is if you're matching the maturity of that line to the maturity of the mortgages, or if we're going to then be at the -- beholding to the Market in 2011? And secondly, whether that line is adequate to do the financing that you need in the coming couple of years?

Well, I answered before that we're hopeful that we can go to another level. We're in a credit crunch and it's hard to finance everything. The people coming to the rescue are the regional banks. The regional banks have their own problems. They have assets and they want to make loans because they like the return, and so a lot of REITs are going to regional banks. We're very happy to get Sun Bank to come in and we think if the portfolio -- the collateral performs and the Company performs, they will not only give us the $10 million, they'll bring it to $15 million and $20 million and they'll grow with us and we'll have a long-term relationship. So having said that, we keep our securities portfolio for a second reason. If we ever really have trouble with one of the banks we'll liquidate the securities portfolio and pay the bank off. So we don't invest in the securities solely as a use of capital. I like wearing a belt and suspenders and we like to invest that way.

Thank you.

We will now move on to our next question.

Hi, Bill Ward. I'd just like to ask, the yield you mentioned on investments, 8.5%, what kind of instruments are yielding that kind of return that you're investing in?

Michael? Well, our portfolio's heavily weighted towards preferred securities and the spreads have widened, so yields are 8.5% to 10%. Our cost of capital through the portfolio is 3.75%, so we're getting about a 500 basis point spread, which is a spread we haven't seen since 2003. Give us some names. The preferred names that are trading at big discounts to liquidation value, iStar Preferred E. You could look at our annual report. We list all of the holdings. The preferred markets not tremendously liquid, but we hold a lot of names and try to buy at a discount so that the yield to call is significantly greater than the current strip yield, so their yielding 8.5% to 10% but the yield to call is north of 12% currently.

Thank you.

We will now move on to our next question.

This is [Dave Bot], I'm a private investor. My first concern is that, as with one of the earlier callers some of us like the purity of the play in mobile homes, and I think we'd be particularly upset if you, as we do, acknowledge that the market value of the Company may be closer to $16 a share and if the stock is trading at $8 a share a merger of our Company into Monmouth REIT really wouldn't reflect its true value and we would have all that future recapture diluted away, so we would certainly would much rather you sell the 28 properties outright than merge it at half price into another company.

The second point that I have is, on the $23 million in security investments that you have, I view that as a negative for all investors that you have this operating company that's -- that you know the business cold perhaps better than anybody else, and to go into long-dated preferreds and common shares that have an infinite duration and finance it with short-term financings you are leaving yourself vulnerable to the old investing long and borrowing short and if rates go up you'll get squeezed. And also as we've seen right now you get beat up badly if the market decides to reprice risk. And I just feel that shareholders and potential investors would, again, like the pure company rather than viewing this as a pure company with an option that the Chairman has to run a mutual fund on -- as part of the Company. We don't know whether it'll be $23 million a year from now or whether it'll be $50 million or what it will be so I just would recommend that you consider getting less involved in investing in trying to arbitrage borrowing costs against investing in the other REITs.

Well, but again you've heard that (inaudible) argument. We think we have a Company -- I hesitate to just throw out numbers because they could be the wrong numbers, but you multiply 7,000 sites times whatever you think a manufactured home (inaudible) site is worth, and get a picture of the value of our real estate, and and you will see that where 8% or 10% of that in securities, and we certainly do want to earn money on them, we want to make them (inaudible), we want to make money, but don't discount that third thing. When the credit crunch hit both Monmouth REIT and UMH I was happy to be sitting with liquid securities and when you -- we spent four months at the other company renegotiating a bank line. If I want my money from the securities broker we pick up the phone and we get a check the next day. So I like having the securities portfolio that I can borrow $5 million, $10 million without going through the work of a bank loan. But we understand your point and I'm not disagreeing with it, and we really have to try to develop this Company so it's of more interest to the investing public, because obviously we're doing something wrong when our stock is trading at $8.25. Just to address your concern about borrowing short and investing long, we're very lowly leveraged in our securities portfolio. We have $25 million in securities and $4 million borrowed against it currently and never take it above 50% margins, so it's not a highly-leveraged portfolio and it never has been.

No, I think we would all love if you had $23 million of UMH shares that you bought -- that you buy tomorrow at $8.25 and get rid of the other stuff.

Sounds like a good idea. (LAUGHTER)

I think in the essence of time, it's 4:00 PM, the call is going to conclude momentarily, so if anybody had a question and didn't have an opportunity to present it, I'd refer back to what Mr. Landy mentioned earlier, feel free to call the Company. You're welcome to speak with any of the officers and they'll be happy to have that conversation. So before we lose the line I'll just turn it back to Mr. Landy for some brief concluding comments.

I just want to comment, I found this very useful and I think we should do it again, and I really appreciate the thought that's gone into the questions. We don't always agree on everything, but the questions have been thoughtful and they have merit, and I hope we've conveyed the information. And the basic story that we wanted to convey is UMH is not problem free, but it's certainly doing very, very well, and we're very optimistic about the future of the industry and we're very optimistic about the future of the Company. So thank you for participating.

Thank you.

Ladies and gentlemen, that does conclude today's teleconference. We appreciate your participation. Everyone have a great day.