UMH Properties Inc (UMH) 2013 Q3 法說會逐字稿

Good morning and welcome to the UMH Properties Incorporated third-quarter 2013 earnings conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Susan Jordan, Director of Investor Relations. Please go ahead.

Thank you very much, operator. I would like to remind everyone that certain statements made during this conference call which are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements that we make on this call are based on our current expectations and involve various risks and uncertainties. Although the Company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can provide no assurance that its expectations will be achieved. The risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the Company's third-quarter 2013 earnings release and filings with the Securities and Exchange Commission. The Company disclaims any obligation to update its forward-looking statements.

Having said that, I would like to introduce management with us today. Eugene Landy, Chairman; Samuel Landy, President and Chief Executive Officer; and Anna Chew, Chief Financial Officer.

It is now my pleasure to turn the call over to UNH's President and Chief Executive Officer, Samuel Landy.

Thank you very much, Susan. Good morning, everyone, and thank you for joining us on our inaugural quarterly earnings call.

UNH's occupancy increased 200 basis points over the prior year quarter from 80% to 82% at quarter end. Applications for residents to buy or rent have continued to increase. We currently have the potential to fill 2300 vacancies. As demand allows, UMH plans to raise rent in excess of costs at the rate of approximately 3% year.

UMH has made substantial progress in growing our portfolio. Over the past four years, we have doubled our portfolio by acquiring 46 communities totaling 6600 developed homesites. As of quarter end, we have grown our total homesites by 23% over the prior year period. Through the first three quarters, we have acquired 11 communities containing approximately 2100 developed homesites for a total purchase price of $74.8 million.

Subsequent to quarter end, we announced tw acquisitions totaling six communities containing 600 developed homesites for a total purchase price of $13.5 million. In place cap rates for our 2013 acquisition have averaged in the high 7% range with occupancy at approximately 83%. As occupancy rises, yields will rise accordingly. Our portfolio is now comprised of 74 communities with 13,400 developed homesites in seven states. These acquisitions will have a favorable impact on our earnings going forward.

Additionally we've entered into a definitive agreement to purchase eight communities with a total of 1012 homesites for a purchase price of approximately $25 million. We are continuing to build our acquisition pipeline and are in various stages of negotiations for a number of community acquisitions. We anticipate adding an additional $100 million in communities over the next few years and earnings 3% over the cost of borrowed funds.

Long-term UMH projects near full occupancy at higher rents, coupled with the return to a profitable sales operation. Many housing analysts agree with the basic premise that housing demand in the future will exceed supply. New household formation, which historically averages approximately 1.5 million households per year, provides a fundamental level of demand. Overall housing starts are at a current rate of 891,000 unit paced, more or less than the homes needed to fill this demand.

In particular, housing demand in the energy-rich Marcellus and Utica Shale region where numerous UMH communities, including recent and future acquisitions are located, is expected to be strong.

On the national level, conventional homeownership rates continue to trend lower and are now at 65%, down from a high of 70%. This has resulted in high occupancy rate and increased rental rates for the apartment sector. However, household formation is an all-time lows due to continued weakness in the labor market. UMH assumes a strengthening in the demand for housing based on demographics and affordability. The stronger housing market is predicted to last for a decade. UMH's shares are trading at a substantial discount to replacement costs and, therefore, represent in our opinion one of the best values in the REIT marketplace.

And now Anna will provide you with greater detail on our results for the third quarter of fiscal 2013.

Thank you. Core funds from operations were $2 million or $0.10 per diluted share for the third quarter of 2013 compared to $2.6 million or $0.16 per diluted share for the third quarter of 2012. For the nine months of 2013, core FFO has increased 7.7% from $8.3 million or $0.52 per diluted share in the nine months of 2012 to $10.3 million or $0.56 per diluted share over the nine-month period this year. Core FFO, excluding securities gains, were up $1.9 million or $0.10 per diluted share for the recent quarter compared to $1.4 million or $0.08 per diluted share a year ago. For the nine-month period, core FFO, excluding securities gains, were $6.5 million or $0.36 per diluted share compared to $4.8 million or $0.30 per diluted share in the prior year period, representing a 20% increase.

Rental and related income for the quarter was $14 million compared to $9.8 million a year ago, an increase of 42%. Our community operating expenses for the quarter were $7.6 million compared to $5.3 million a year ago, representing an increase of 44%. Our community operating expenses for the quarter included costs such as repairs and maintenance associated with bringing our newly acquired communities up to our high UMH standards. These expenses will decrease as we complete the process of upgrading these communities, which include adding rental homes and creating new sales centers.

Income from community operations increased $1.8 million to $6.4 million for the quarter, representing a 40% increase from the comparable period a year ago. This increase was due to the additional income related to the 11 communities purchased during 2012 and 17 communities purchased thus far in 2013. Same-store income from community operations were $4.3 million for the quarter compared to $3.9 million a year ago, representing an increase of 10%. This was primarily due to an increase in occupancy and in rental units. As Sam already stated, end of period occupancy increased from 80% in the prior year period to 82% at quarter end. We've seen increased demand for rental units and during 2013 have added a net of approximately 200 rental units to selected communities, as well as acquired 300 rental units from fiscal 2013 community acquisitions.

Our sales operations remained relatively stable year over year. We have reduced our loss on sales of manufactured homes by 55% to $132,000 for the third quarter of 2013. Over the next year, we intend to return our home sales division to profitability. As of the quarter end, our capital structure consisted of approximately $197 million in debt, of which $154 million was community level mortgage debt and $43 million were loans payable. The weighted average interest rate on our mortgage debt was 4.4% as compared to 5.1% in the prior year period. 94.5% of our mortgage debt is fixed rate. We also had a total of $92 million in perpetual preferred equity at quarter end.

From a credit standpoint, our net debt to total market capitalization was 39%, and our net debt plus deferred equity to total market capitalization was 58%. For the three months ended September 30, 2013, our fixed charge coverage was 1.8 times, and our total debt to EBITDA was 7.0 times. From a liquidity standpoint, we ended the quarter with $7.8 million in cash and cash equivalents, $15 million available from our credit facility, and $7 million available on our revolving line of credit for the financing of home sales and the purchase of inventory.

In addition, we held $54.2 million in marketable REIT securities. At the end of the quarter, we had $1.9 million in unrealized gains on our securities investments in addition to the $3.8 million gains realized thus far through the third quarter of the current year.

And now let me turn it back to Sam.

Thank you, Anna. Our discussion today is focused on UMH's quarterly and nine-month results and our strategic plan to improve these results in 2014.

UMH intends to improve financial results in 2014 by doing the following: requiring $75 million in land leased manufactured home communities, increasing FFO by approximately $2,250,000, and expanding our rental home program by 100 to 150 homes at a cost of $4 million to $6 million, increasing income by approximately $1 million.

Additionally, UMH anticipates that sales of homes will improve, rent increases will be achieved and that occupancy will rise. It is UMH's intent to maintain the current $0.72 dividend in 2014. This intent is based on our current evaluation of the housing market and the steps we are taking to increase FFO. As always, dividends are declared by the Board of Directors based on actual operating results achieved which may be different than current projections. Our earnings net of securities gains have been increasing, as has our occupancy. We believe the Company has substantial operating leverage to grow our earnings in excess of our dividend over time.

Going forward we will be providing regularly scheduled quarterly earnings calls and look forward to reporting back as events progress.

Now we would be happy to take your questions.

(Operator Instructions). Paula Poskon, Robert W. Baird.

Thank you. Good morning, everyone. I was wondering if you could, Anna, perhaps explain in a little bit more detail how your DRIP program works and how you think about using that to match fund acquisitions? How do you control how much shares are issued at the time that you need them?

This is Eugene Landy, Chairman of the Board. For many years, when we have been using the dividend reinvestment shareholder investment plan, probably for 30 years, we meet every month with Susan Jordan; we go over the capital needs of the company. At the present time, we have a series of acquisitions that are under contract, totaling, I believe, $36 million and requiring about $8 million in cash. And as Sam pointed out in his opening remarks, we plan to purchase about $4 million in additional rental homes so that the cash you want to raise is about $12 million. And then we grant, pursuant to the plan, waivers to shareholders, and we are raising approximately $3.5 million a month under this plan. We find it a very efficient way to raise capital, and we can cut it off anytime we want to, and we watch it very closely.

UMH is one of the smaller companies at about $200 million market cap, and we have an excellent bank line and we have excellent relations with our investment bankers. And so we continue to grow the Company through the dividend reinvestment shareholder investment plan.

Thank you, Eugene. How do you all think about balancing your acquisition investment and funding that in terms of capital allocation? Do you have a strategy of being leverage neutral? Are you trying to delever? Are you comfortable levering up more? Just kind of walk us through your philosophy on that.

We are one of the lowest leverage companies. As Anna pointed out in her opening remarks, we only have about $200 million in debt. We own 15,000 sites, and you can put any value you want on that and see that adding the value of our sites and the value of the other assets we have, we are a low leverage company. We intend to maintain our status as a low leverage company, but we certainly don't want to be less leveraged. It's simply that we have an ambitious acquisition program. And to do that acquisition program, where we stay liquid, I can still remember when we got the largest acquisition, we did a $67,500,000 acquisition, and the seller wanted to know if we could handle it. We just smiled at them and said yes, of course, we can.

So we can handle $25 million, $50 million or $100 million in Park acquisitions, and we are keeping ourselves well-capitalized and liquid to do that. We think it's a very opportune time to grow in what we think is a very exciting industry, the manufactured housing industry, and we think the housing industry is coming back. It's going to come back strongly. We think affordable housing is going to be in demand, and we think manufactured housing land leased communities is an excellent area to be in. And so we continue to raise capital so that we can continue to expand the Company.

Our goal is to get to 15,000, 20,000 sites. Our short-term goal was to get to 15,000 sites, and we think -- from I believe 13,200 right now. And we believe that's readily achievable.

Thank you. And Sam, are you finding the acquisition opportunity set on the rise, and if so, what do you think is driving more sellers to come to market?

I don't know if I would say it's on the rise, but we are able to find communities. And the reason they are for sale, people purchased these communities seven, nine years ago, predicting increased rents and increased occupancy. And because of Fannie Mae, Freddie Mac and the jobs recession, they weren't able to achieve the increased occupancy or increased rents that they projected, and over time they have decided to sell the properties. And during those years, they were also not able to upgrade the communities, add rental units, finance home sales, put in inventory or do all the things we can do to improve the properties and ad revenue.

So the properties we are buying, we are very excited about. We think they are in great locations. Some of them are in good condition at the time we acquire them. Others have many old homes and have an awful lot of deferred maintenance. All that costs money in the beginning, but our best example is the first community we purchased, Weatherly Estates, that we bought in 2006 for $5,200,000 for 270 spaces. At the time, it was 58% occupied, and today we are over 90% occupied. And the value today is in excess of 40,000 sites. So we've doubled the value from $5,200,000 to $10,400,000, and it's also become one of our most profitable communities. We've bought it at an 8-cap, and our income is up substantially and so is the sales income from that community. That's what we plan to do with all the acquisitions.

And can you also talk about your market strategy, where your assets currently are and why you chose those, and what other markets you would like to get into that you are not currently in?

We believe that the Ohio market and the Pennsylvania market are going to benefit from the Marcellus Shale and the other shale gases. We are there all the time, and we see the drilling rigs coming in; we see the workers coming; we know that you can't get hotel rooms in Ohio and Western Pennsylvania. We see the demand there. So we have been acquiring throughout Ohio and Pennsylvania. Nashville has been a fantastic market for us, we made the acquisitions there, and we are really impressed with the growth of Nashville and how well we are going to do there. Indiana: Elkhart, Indiana, it's where they build the RVs and manufactured homes. And they had a very serious recession, but they are coming out of the recession, and we are making our acquisitions in Indiana. And we continue in all of those markets. And if a group of communities with enough scale was for sale, we can't go to a new state for one 200-space community, but we would go to a new state if there was a large enough acquisition available and we thought that there was upside to that acquisition.

Thanks very much. Appreciate your time.

Brian Hollenden, Sidoti & Company.

Hi, guys. Thanks for taking my question. The question is actually similar to the last question. 2014, the guidance was you plan on spending about $75 million in acquisitions. So you're targeting the similar states that you are already in with that particular $75 million?

Absolutely. We are finding them on a one-off basis. It's the most difficult thing to do, buying from individuals on a one-off basis -- 150, 200 space parks at a time. But we are doing it contiguous to our existing holdings, and we are seeking them out and we are very hopeful. As I said, the pipeline itself on the signed contract is $36 million, and we are working every day to add to that pipeline. And add another 1000 units, all of them we hope in Pennsylvania, Ohio, Indiana, Nashville area of Tennessee, and we are optimistic we can take the Company to the 15,000 mark. If you don't know, UMH believes it's one of the 10 largest owners of manufactured home communities in the country, and we want to maintain that status.

Even though we say that we do one-off deals, we are finding small acquisition portfolios. For instance, the one that we announced is an eight-community portfolio that we hope to close at the beginning of next year.

And at what cap rates?

Our cap rates are usually between the high 7%s, and as occupancy increases, that yield will also increase. Usually we buy these communities at about -- approximately 83% occupied. So we have upside on those communities.

Right. I don't know if you've mentioned it, but what's your -- just sort of where do you see occupancy going 2014 on the overall portfolio?

That's a question I want to answer. In the past 12 months, 23 communities have experienced revenue growth of 5% or more. 12 of these communities have revenue growth between 5% and 10%. Five communities have increased rental revenue 11% to 15%, and three communities have increased rental revenue over 20% with the highs being up 29%. And there's a lot of reason to believe that that's going to continue.

In the immediate acquisitions, what happens, the current owner, they hadn't done evictions that should be done. They hadn't enforced the rules and regulations. We come in, and we have to do that. So occupancy declines the first 12 months we own the community. We add brand-new homes for sale, brand-new homes for rent. We upgrade everything, and then the occupancy strongly increases, you know, the numbers I just read to you. And the people we hired, when you go through the community, everybody is very optimistic about what our program is and how it's working. The demand for rentals is strong as can be. Sales is a little bit dependent on financing, but we are not doing as well as I'd like on sales, but we are selling eight new homes per month. And if you count the lease purchases, we are doing 14 new homes per month, plus the rental units, which is separate. We think we can do a lot more, but that's where we are right now.

So I am pretty confident that we are going to have revenue growth from each of those communities existing and the acquisitions and that occupancy will continue to grow.

Right. So I guess the last two quarters were at 82% occupancy? Is that -- do you have a general frame of reference? Do you expect in the full-year 2014 about 83%, or is the number a little bit higher than that?

We don't have that sharp a pencil on exactly where the occupancy is going to go. The industry has been somewhat disappointing. We used to sell 250,000 homes a year with the recession and difficulty getting financing in the manufactured housing area, it went all the way down to 50,000 homes. I understand we are now up to about 66,000, and this year we will go ahead about 12%. That's actually disappointing. We think this industry will go back to 150,000, 200,000 and 250,000 homes. And when that happens, for decades, 25, 30 years, the status of most manufactured home communities was full. It was only with the subprime mortgages where the tenants that were in the manufactured home communities were lured out of the ports into homes they couldn't afford, and the other way they had been foreclosed out, and we are waiting for them to come back to the days that we experienced prior to 2007 when the industry was doing much better. And that's what we are looking for. And to tell you when we are going to go from one percent to another percent, we're looking for bigger things and more prosperous things to happen. Some of that is a little bit beyond our control, but the demographics are there. The affordable housing is going to be in short supply, and we think our product will sell very well.

Thanks, guys. Appreciate you taking my question.

[Michael Bulgeras], [Bulgeras Investments].

Good morning. Thank you for having this conference call and for taking my question.

I guess to just extend on that comment, Gene, that you made on occupancy going from one percent to another, maybe you can discuss things you can control. For example, in the press release, Sam, you talk about investment and repairs and maintenance and staffing centers. Can you be a little more specific as to that investment and the tangible returns you see within a 12- to 18-month period?

Let me tell you about Holiday Village, which is just north of Nashville. So close to Nashville that you can see the city and you can see the highway from the community. And on top of buying a community, we purchased 30 vacant acres overlooking Nashville, which I think someday could be a 500-unit apartment complex. But when we purchased this community, no tree removal had been done. No homes had been evicted or brought in for the past nine years. So the repairs and maintenance bills on that community, which we've owned less than a year, are $140,000. And there's other communities like that. I'm giving you one specific example. And that's what happens.

And so the first year of owning these communities, the expenses are way up, and not only that, but the revenue goes down because I have to do the evictions nobody else did. But like I said, the second step is pure upside.

It is very important to tell you about our business plan. Nobody has taken a portfolio of manufactured home communities and created a successful retail sales center yet. That's what UMH is trying to do. We're trying to take 74 locations, create sales centers, sell homes, earn a profit, and we also finance homes and we broker home sales, and we rent homes. In 2006, we sold $17 million worth of houses and earned $2 million on sales. Since then, the whole housing market has been decimated, and it's been really impossible to sell homes and make money. We continue to sell homes because brand-new homes upgrade to community. So even if we lost money on sales, you put a brand-new house in that earns revenue, and it will continue to earn revenue for 40 years or more. And it increases -- improve the appearance of the community, which makes it easier to sell the next home. When you put a brand-new home next to an old home, it's hard to sell. You get five new homes on the street, it's much easier to sell the new homes.

So we believe we are currently going to do about $8 million, $9 million -- I think we are over that -- about $10 million in sales this year. But we project that eventually we're going to go back to the $16 million, and now that we are double in size, there's not a whole lot of reason we can't be $32 million. We have expansions we are building. We have locations that used to have dealerships Monticello and New York and the Pennsylvania area, Ohio area. There were successful dealers who sold more than a couple million dollars a year worth of manufactured housing, and they are no longer there, and we are the only one in town. We need the housing business to pick back up, but when that happens, our retail sales can be a substantial part of our business.

Let me add to that. Because I know there are people on the call that understand the manufactured housing industry. The decline was so deep and so long that all of the retail outlets are gone. All of our parks used to be surrounded by two, three, four retail outlets. Some of these retail outlets sold $20 million homes in a year and made $2 million. Our park in Monticello, there was a sales outlet similar to that, next door to us, and now Pittsburgh Parks, there were retail centers that were very successful.

What we have been doing very quietly is just buying up the land that they used to own, and we bought the sales center and land in the Monticello area. We bought the land down in Memphis, Tennessee. I don't know if we completed the Port Royal acquisition yet? Yes, we have. We have the Port Royal acquisition. We have all this land that was previously used for sales centers, and if this industry comes back, we are positioning UMH to open both sales centers at our 78 locations, but four or five regional sales centers that could demonstrate -- could produce significant profits.

Again, we believe in the industry, we believe the industry is coming back, we certainly believe housing is coming back, and we think affordable housing will be in demand. And so we are positioning the Company to benefit financially by these developments. When they will occur, that I can't control.

Thank you for that color and detail in your innovative marketing approach and your forward-looking vision. You talked about a dynamic growth outlook in the next coming years, I think you said, and to that extent in, let's say, the coming year, 2014, do you expect that you will need to have a secondary offering, or with your strong credit line and bank relationships and securities portfolio and so on and cash on hand, that you can finance these acquisitions organically?

Well, we had a major acquisition of $100 million or more that we might have to go back to the market. But we can handle up to $100 million with our present balance sheet and with our present raising capital almost internally through the dividend reinvestment shareholder investment plan.

Very well. And finally, Sam, just from your perspective, as you see the manufactured housing market starting to transition, what is your greatest challenge in fiscal year 2014?

Well, I'm going to say it's marketing. I think that we've done an incredible job staffing the communities. We acquired these new communities, and we were worried about that. But the people who came from the old owners, we've trained them, added inventory, and gotten to know them, and we are really pleased with our people. And what's happened, though, is over the last nine years, as all the retailers have gone out of business, you've lost the joint marketing. Used to be in any market you went, you would hear somebody on the radio or see somebody on the TV selling manufactured homes.

Now there's nobody marketing anywhere. And that lack of marketing -- and it's for a substantial period of time, 7 to 9 years -- people just don't think of manufactured homes and land leased communities as the great housing choice that it is. And so part of the reason we use rental units is it's a good way to bring people in and give them the experience of living in a manufactured home community. When we get the people in the door to see the houses, they can't believe how great our product is. If what they're picturing is the 1970s trailer, that's not what we sell today. It's not what we rent today. The manufacturers -- Clayton, Skyline, Champion, Eagle River -- they've created an incredible product that's priced right, and our biggest difficulty is getting people to take -- to lose that picture of the 1970s trailer and come in and see what we are selling and what we have. If we achieve that, we can usually sell them or rent them a house.

I just wanted to add one thing, also. One of the other things that we are a little worried about -- for me, anyway -- is government regulation. We think that the Safe Act and Dodd-Frank has hurt us, and it has made it harder for our customers to obtain financing. So government regulations also in there has put one of our challenges in the future.

Thank you, again, and congratulations on your growth initiatives and driving value in your communities once you acquire them. We appreciate your comments today.

Thank you.

(Operator Instructions). Paula Poskon, Robert W. Baird.

Thank you. Sam, when you are out in the acquisition market, are you mostly sourcing through brokers and looking at marketed deals, or are most of your transactions sourced yourself or one-offs?

Well, the initial transactions were sourced ourselves. We've developed a very strong relationship with Marcus and Millichap, and they bring us deals. And through all the associations, state associations and national associations, most of the people who own communities know us and know we are acquiring. So it's unlikely that someone in our markets would be selling a community and not call us.

So, in Ohio, almost all the deals come from Marcus and Millichap. The initial deals, it was the ARC portfolio that we had strong relationships with them, and they came right to us. And now some of the new ones are just relationships brought us to communities.

Thanks. Anna, just a follow-up on the third-quarter earnings release. Are you able to tell us what the dollar figure was of the expenses, of the amount of CapEx that you expensed in conjunction with acquisitions?

As I said, there were some repairs and maintenance and some, I guess, dumpsters and things of that nature in the cleanup of the communities. I would say probably about 150,000 to 200,000 just for the quarter, but year-to-date it's more than that. (multiple speakers). Thank you.

Craig Kucera, Wunderlich Securities.

Good morning. Thanks for having the call today. I guess I wanted to follow up on the question about this quarter's expenses. There was a bit of an improvement sort of in your expense ratio for lack of a better term for this quarter, and it sort of reverted back it looks like net of that number you just gave to where it had been last year. Is that sort of a reasonable amount of expenses on a run rate basis to look at going forward?

Let me answer that. Anna is the expert on the numbers. Historically we think we should be able to run communities for approximate 40% of revenues. Certain states that are a high tax state you might run over that. UMH is running closer to 50% because we're trying to upgrade our communities. And we have a policy -- I won't say it's unique, but we don't budget a certain amount of expenses. We tell our managers to fix everything. We don't understand how you can limit a budget to a certain amount and not fix potholes and fences and whatever has to be fixed.

So if we get a request to fix something, we fix it. And so expenses can vary quarter to quarter, year to year. And as Sam pointed out in many of the parks that we bought, there was deferred maintenance for as many as seven years. So we just can't be specific on what run rate we're going to run this quarter and next, and we really don't think it's important. We know some analysts and others think it's important. We know that eventually we'll get the numbers back to where they should be, between 40% and 50% of revenues, and our overall game plan over the years that we've run parks is that you hope to take your gross rents and over a decades or two double them, and your expenses will also double, but that means your income will double. And that's what happened for 30 or 40 years before we got into this recession and the downturn in the industry.

So we are not at all troubled if one quarter the expenses are up. We do go, and I must assure you, we go park by park, we study every park's numbers, we study the expenses, and they are at what they are, and if we have to spend more money to fix up a park, we spend it.

So your observation is quite correct, though. The expense numbers for the quarter were higher for the reasons given. The administration expenses were also higher. We run on an administrative basis one of the lowest cost public companies in the industry, and we have to grow the company even bigger, though, so that administration stays about 10% of revenues. It's higher than that. So we are aware that the administrative and expenses could appear to be out of line, but they are really not.

I'll be specific as to how that works. So we buy a 200-space community with only 150 lots occupied. The prior operator probably had one person in the office and one maintenance person. Well, if we're going to try to rent new homes and sell new homes, we actually need two people in the office. We need to rehabilitate any rental units they had that they didn't fix. We need to put in the new rental units. We need to put in the new sales inventory. We need to market all of that. All of this initially just pushes up expenses. But the way communities were built back in the 70s, 80s and 90s, you made enough money on the sales to virtually pay for the construction of the community.

So as we get the sales going again, the sales will easily pay for the added staff and the improvements to the community, and all the increased rental income will come to the bottom line. Once the community is over 90% occupied, it's very easy. It's when there's vacancies that you have to cut the grass on the vacant lot, and you have to have extra people to show the houses and sell the homes, and you have to market. Once you are full, the expenses go down fairly substantially.

Great. Thanks. I appreciate the color.

This concludes our question-and-answer session. I would like to turn the conference over to Samuel Landy for any closing remarks.

Thank you, operator. I would like to thank everyone on this call for their continued support and interest in our Company. We look forward to reporting back to you after our fourth quarter.

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