UMH Properties Inc (UMH) 2014 Q1 法說會逐字稿

Good morning and welcome to the UMH Properties, Inc. first-quarter 2014 earnings conference call.

(Operator Instructions)

Please note this event is being recorded. It is now my pleasure to introduce your host, Ms. Susan Jordan, Director of Investor Relations. Thank you, Ms. Jordan, you may begin.

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 first-quarter 2014 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'd 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 UMH's President and Chief Executive officer, Samuel Landy.

Thank you very much, Susan. Good morning, everyone and thank you for joining us. We are pleased to report our results for the first quarter, ended March 31, 2014. UMH has continued to execute our growth strategy of purchasing well located communities in our target markets including the energy rich Marcellus and Utica Shale regions. We have increased the number of our developed homesites by 16% over the prior year period.

In March 2014, we acquired eight manufactured home communities or $24.950 million. These eight all age communities totaled 1,018 sites and are situated on approximately 270 acres and are all located in the Marcellus and Utica Shale regions of Ohio. The average occupancy for these communities at closing was approximately 70%. We assumed mortgages totalling approximately $18.1 million and used our credit facility to finance the remaining cost of this acquisition.

Additionally, over the past four years, we have more than doubled our portfolio by acquiring 54 communities, totalling 7,700 developed homesites. Our portfolio is now comprised of 82 communities with 14,500 developed homesites in seven states.

UMH has continued to expand our acquisition pipeline and has entered into definitive agreements to purchase six manufactured home communities with a total of approximately 589 developed homesites. These communities are located in Ohio and Pennsylvania. The aggregate purchase price of these communities totals approximately $17.6 million.

In conjunction with the purchase of these communities, we will assume mortgages totaling approximately $8.6 million. We anticipate closing these transactions during the third quarter of 2014. We have positioned ourselves for future growth and will continue to seek opportunistic investments.

Income from community operations increased to $6.6 million for the first quarter of 2014 as compared to $5.7 million for the same period in 2013. Overall occupancy has remained relatively stable at 81%. Same store occupancy has increased from 80.8% in the first quarter of 2013 to 81.8% currently.

With chattel mortgages for homeowners remaining scarce, we continue to see increased demand for rental units. After adding approximately 300 rental units to selected communities in 2013, as well as acquiring 300 rental units with fiscal 2013 community acquisitions, we have added an additional 110 rentals in the first quarter of 2014. We intend to add more rental units throughout 2014 as demand dictates.

Occupied rental units represent approximately 15% of total occupied sites at quarter end. Occupancy in rental units continues to be strong and is currently at 91% occupancy. We intend to convert current renters to new homeowners in the future.

Our sales of manufactured homes for the quarter were disappointing going from $1.8 million in the first quarter of 2013 to $1 million in the first quarter of 2014. The severe winter weather experienced by the northeast hampered home sales. January and February industry shipments for the states in which we operate were also down first quarter by approximately 24%. We anticipate that second quarter sales will show an improvement as purchases delayed by bad weather proceed.

We have taken a number of steps to increase home sales, occupancy and profitability including a broad marketing campaign and the opening of an additional two regional sales centers that will sell homes both inside and outside of our communities.

We have also partnered with 21st Mortgage Corporation to finance home purchases. Although we had a slow start in this first quarter, we believe that this partnership has the potential of increasing home sales.

UMH's core funds from operations for the first quarter were $0.11 per share. Although this is an improvement from $0.05 in the fourth quarter of 2013, it still falls short of the amount needed to cover our $0.18 per share quarterly dividend. Increased occupancy and improved sales should improve our operating results significantly.

UMH remains positive as to the future prospects of affordable housing and manufactured homes. Traditional site built home prices have risen more than 20% over the past two years, which may render these homes beyond the reach of many potential homeowners.

Baby boomers seeking retirement will also add to the need for low cost housing alternatives. For this reason, we will recommend to maintain the continuation of our current dividend to our Board of Directors at the next quarterly meeting, not withstanding the current shortfall.

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

Thank you, Sam. Core funds from operations or core FFO were $2.4 million or $0.11 per diluted share for the first quarter of 2014 compared to $5.3 million or $0.30 per diluted share for the first quarter of 2013 and $1.1 million or $0.05 per diluted share for the fourth quarter of 2013. Core FFO, excluding securities gains, was $1.9 million or $0.09 per diluted share for the recent quarter compared to $1.9 million or $0.11 per diluted share a year ago, and $825,000 or $0.04 for the fourth quarter of 2013.

Rental and related income for the quarter was $14.8 million compared to $11.6 million a year ago, an increase of 28%, primarily due to the acquisition of 15 communities since the prior period. Our community operating expenses for the quarter were $8.3 million compared to $5.9 million a year ago, representing an increase of 41%.

Community operating expenses, including repairs and maintenance and utility expenses, were higher than anticipated due to the harsh winter weather. Income from community operations amounted to $6.6 million for the quarter compared to $5.7 million a year ago, representing a 16% increase.

Our sales have decreased from the prior year period from $1.8 million to $1 million in the first quarter of 2014. Our loss from the sales operations, including interest expense, increased from $346,000 for the first quarter of 2013 to $582,000 for the first quarter this year. This loss does not take into consideration allocation of corporate overhead. As Sam has stated, we intend to bring sales back to profitability.

As of quarter end, our capital structure consisted of approximately $231 million in debt of which $178 million was community level mortgage debt and $54 million were loans payable. 95.4% of our mortgage debt is fixed rate.

The weighted average interest rate on our mortgage debt is 4.8% and the weighted average maturity is 5.9 years. We also have a total of $92 million in perpetual preferred equity at quarter end. Our preferred stock combined with an equity market capitalization of $212 million and our $231 million in debt gives us a total market capitalization of approximately $535 million at quarter end.

From a credit standpoint, our net debt to total market capitalization was 42%. Our fixed charge coverage was 1.5 times and our total debt to EBITDA was 9 times. From a liquidity standpoint, we ended the quarter with $7.8 million in cash and cash equivalents and $5 million in availability under our credit facility with an additional $15 million potentially available pursuant to an accordion feature.

During the quarter, we drew down an additional $10 million to fund our eight community acquisitions. We also had $7.9 million available on our revolving lines of credit for the financing of home sales and the purchase of inventory.

In addition, we held $60.7 million in marketable REIT securities encumbered by $13.1 million in margin loans at 2% interest. Generally, 50% may be borrowed on margins.

At the end of the quarter, we had $4.4 million in net unrealized gains on our securities investments in addition to the $508,000 in total gains realized thus far in 2014. And now, we would be happy to take your questions.

(Operator Instructions)

Our first question will come from Stephen Dye of Robert W. Baird.

Good morning, everyone.

Morning.

I was just wondering if you could quantify the impact of the winter related costs and OpEx for the quarter? And then also if there were any one-time costs related to the first quarter acquisitions in that OpEx figure. I know in past quarters there's been some one-time, random expenses associated with OpEx. So if you could just clarify those items.

I'll let Anna be specific about that. This is Sam Landy here. I wanted to tell you that communities that are over 90% occupied should run on expenses between 30% and 50%. If the community has separately metered utilities then you might get the expenses down to 30% of revenue. If the utilities aren't separately metered, expenses might be 50% of revenue.

As we're making these acquisitions, there's a lot of clean up work involved in removing old homes, upgrading the communities, building sales centers. You have your additional winter expenses, I'll let Anna be specific with that. But ultimately, separately metered utilities, you're looking at expense ratios of 30%, 40%, and if we're directly paying the utilities, about 50%. That's where we expect to be over time with communities we've acquired and communities we own. Go ahead, Anna.

Sure. In total, I shouldn't say in total, but we believe that it's approximately $200,000 to $300,000 just with specific expenses regarding the dumpsters and the home demos. However, that doesn't include the extra people that we had to employ while getting the new communities back to the 90%, 95% occupancy that we wish to have and to upgrade those communities.

So the $200,000 to $300,000 was specifically related to the acquisitions in 1Q.

In 1Q, right.

That's helpful. And then it seems like the rental program is going well, but I feel like there's still some disconnect in translating that rental occupancy into owner occupancy. Do you believe there's maybe a structural phenomenon in your markets where consumers have a great propensity to rent?

This is Gene Landy. Yes, that's happening industry wide. I was very reluctant to go into the rental program and we lagged behind our competitors in introducing rentals, but now I see quite clearly that there is a change in the demographics. That the young people want to rent and that the housing market, which used to be over 65% home ownership and 35% rentals is changing. So that you're now seeing nationwide a move towards rentals and it's helped the apartment market and of course, it's now helping us.

The fundamentals of our business right now is that rentals are quite strong. This isn't a projection. 91% occupied rentals and as fast as we bring them in, we can rent them as this shift towards rentals continues. So the basic business is sound, but the sales aspect of it has been very disappointing. We think that over the last few weeks, it's beginning to turn, but you can't tell. We know that sales are picking up, but we don't know whether this is just seasonal or whether we finally see the turn in the industry.

The industry has gone from 250,000 to 300,000 units a year all the way down to 50,000 and has recovered from 50,000, in fact recovered is the wrong word, to 62,000. This is no recovery at all. This industry should sell 150,000 homes a year. It's been our firm prediction that this will ultimately happen because we have a great product.

The home is affordable. It's at the right price. And we're waiting for a return to the basics of the industry. And that will solve our occupancy problem. Traditionally, over 30, 40 years, manufactured home communities were full, absolutely full. The industry's problem was we couldn't build enough communities to satisfy the demand.

Now over the past five, six, seven years, we have had a situation where occupancy continued to fall down to the point where I think we're about 80% occupancy and we think 96%, 97% should be the proper figure.

So the basics of the company are that right now we're generating over 60 million a year in rent. Expenses, which should be running below $30 million are running somewhat over $30 million and we're aware of that problem. If we can get to good occupancy, full occupancy, we'll be up to $75 million gross income and if we keep the expenses in line, it will be about $37 million. So we'll pick up about 8 million as we go to full occupancy.

We still expect that to happen. We're still buying communities at attractive prices and we think the fundamentals are really sound. The clutter that you see right now of expenses being higher than normal, part of that is that water, sewer, taxes, health care costs keep going up and we haven't been raising rents commensurate with the increase in costs. But again, if the market changes, which everybody anticipates, not just for our industry but everybody in housing, that the demand will exceed supply, and the pricing will rise accordingly.

If I can just touch on that a little bit. One with of the biggest issues in manufactured home sales has been the financing issue, both obtaining the financing for our customer and the cost of financing, that the financing costs more than conventional home mortgages. I saw a paragraph on a letter from Warren Buffett to Kevin Clayton, and Warren Buffet was saying to Kevin Clayton, if he could solve the problem on the losses of repossession, this business is a no-brainer, the interest rates will fall and the financing will be easier.

In January 1, we entered into an agreement with 21st Mortgage where they originate the loans and we guarantee them. With this type of a program, the lender, 21st, really has almost no chance of losing money. As we develop a history of this, it could be that there's more approvals of loans and lower interest rates and those are the things it's going to take to really get manufactured home shipments throughout the country from the anemic 60,000 back up into the 200,000, 300,000 range and we see that coming at some point.

Great. Thanks. And just in terms of the acquisition pipeline, can you just talk a little bit about your plans on funding those $17.6 million in acquisitions?

We have absolutely no problem in funding. We recently returned from the MHI conference, and we met with, what was the --

A number of organizations including the Freddie Mac program.

The Freddie Mac program, our bank relationships are excellent, the regional banks want our product. You're dealing with company that has close to 15,000 sites and so we have $500 million, $600 million in assets and Anna, what's our total debt.

Only about 220, 230.

$220 million, and I take $50 million off of that because we have liquid securities. So we're very low leveraged manufactured housing REIT and financing is not our problem. Our problem is sales right now.

To be specific on the $17.6 million in acquisitions, we will be assuming 8.6 in mortgages and we only need approximately $9 million to close those deals and we have that availability.

Okay. Great. Thanks. That's all from me.

Thank you, Stephen.

Operator. The next question is from Brian Hollenden of Sidoti.

Good morning, guys, thanks for taking my call.

Good morning Brian.

Hi. You have about 2,300 vacant homesites; is that correct?

Approximately (multiple speakers).

My question is, what is the rate balance between purchasing additional properties compared to waiting until those vacant lots start to fill up. How do you gauge that?

Everything is based on location. UMH owns 30 communities with occupancy over 90%. The places that you see the vacancies in the existing portfolio, it's generally caused by the economics of those areas.

You know, Western Ohio, Pennsylvania, places where the coal mining jobs and the steel jobs were lost. And we're acquiring in those areas based on the belief that the Marcellus shale workers and the growing economies will result in these communities, which were once 90% to 100% occupied, but lost their occupancy. We're buying them betting we can fill these sites.

To not do acquisitions because we think we can fill those sites would be a big mistake. I mean, we're doing acquisitions because, in good markets, communities have over 90% occupancy. UMH has been doing this since 1969. There was a point in 2006 where we couldn't find acquisitions. They were just too expensive and we were trying to expand by building expansions or even trying to build communities. We learned that expanding by expansions or taking vacant land and building it into communities is virtually impossible. The approval process is just so horrible, so time consuming, so uncertain and your expenses are so uncertain that it's just way too difficult.

Acquiring communities, even with vacancies, like the portfolio we're working on now with 70% occupancy is a fantastic thing to do because we're buying at lower than replacement cost, we're looking at the demographics of the areas we're making the purchases and we believe that we are going to increase the occupancy.

I tell everybody the first step is backwards because the prior owners of these communities bought them anticipating higher rents, increased occupancy and when those things didn't materialize, they stopped doing maintenance, stopped making capital improvements, stopped evicting people who should have been evicted.

The only declines in occupancy that UMH is currently seeing in its portfolio are the communities we recently acquired and that's because with we need to enforce the rules and regulations and do the evictions in those communities. We need to upgrade the communities.

So when we make our acquisition, we may, in fact, reduce occupancy the first six months. But then we received tremendous favorable feedback from municipalities, potential customers and existing customers as we upgrade them, market them, enforce the rules and regulations, provide proper management, the occupancy just starts increasing.

Plus we have the ability to do this with rental units. We anticipate adding between 300 and 400 rental units per year. Rental unit only costs us about $40,000 fully set up and we expect to earn 20% on the rental unit during the year. So we should, in my opinion, we should absolutely continue to make acquisitions despite the vacant sites and we should continue to work on filling those vacant sites through both sales and rentals.

I'm just going to repeat what Sam said because it's so important. If we can buy a site for $30,000, $35,000, even 40,000 a unit if it's well located and if we can put a $40,000 double wide with three bedrooms and two baths, we create a housing unit at $70,000, $75,000. Our competitors in the apartment REIT sector of building units not even three bedroom, two bedroom units for $220,000 a unit. So we're highly competitive, brand new units.

We think the right thing for us to do is to continue to buy communities to the extent we can find them. We're concentrating on eastern Ohio and Pennsylvania because of the Marcellus and Utica Shale, but we think the overall housing market is going to be good nationwide, but we think that segment will be particularly good. So we're continuing to buy communities as they become available.

Okay. Thanks for that. Just one quick follow up you had touched on. Could you talk a little bit about, more specifically, the rental segments going very well, how you exactly go about converting renters to owners? Is it purely getting them financing or there's some other key elements there?

Well, one of the things is a lot of people have never experienced living in a manufactured home community, and so they have a degree of not knowing what it's going to be. The rental unit allows them to come in there with no commitment to see what it's like in the community and from there they could purchase the house they live in or purchase another house. We have what's called a lease with an option to purchase which results in sales. You have, what happens is you rent the house to one person and then their various family members wind end up buying the houses.

There's a lot of people who really want to convert rentals to sales and it's something we want to do and can do over time. When you're collecting $8,000 per year on a rental unit in 5 years you have 100% of your money back, and you can sell that house for almost anything and still be okay.

I personally like rental units an awful lot. You can raise the rent each year. You can monitor how the resident is taking care of the house, the quality of the residents. When we first started doing rental units, the reason I was for it, if I drive through a community, I really can't tell the difference between a resident owned home and a rental unit.

Homes have improved so much that the benefits of putting in a brand new house in a community, whether it's a rental or a resident occupied house, it creates substantial aesthetic value for people driving through the community.

So yes, we want to sell homes. Primarily the reason we want to sell the rental units is so I can purchase additional rental units. It's a good way to fund the purchase of additional rental units. I don't believe that sale of rental units is an important part of our business plan. We could just continue to rent those houses out.

After 15 years, I'd recommend you sell the houses because it's so much easier to care for a newer rental unit than an older rental unit. So I would prefer rental units are less than 15 years old and you work on selling them as that hit that point. But I don't see any real need to convert renters to owners because we are able to enforce the rules and regulations and make sure that rental occupancy does not degrade the community.

Thanks, guys.

Next we have a question from Craig Kucera from Wunderlich.

Good morning. I may have missed this earlier, but I know in your note you mentioned that the weather impacted sales and traffic. Can you give us any additional color on maybe how traffic has changed since things have warmed up in your markets here, as we are sort of in the middle of the second quarter.

Sure. There were a couple issues that affected sales for January, February and March. One of which was, of course, the weather, which was horrendous. The second issue was going to the 21st mortgage program. It changed the paperwork on our lending, which just required more time for our various sales people to learn how to do the paper work and to learn how to properly handle the process, which also delayed things.

Those two things combined, and additionally, manufactured housing lost its distribution network when sales fell from 200,000 units to 60,000 units and when we lost our distribution network, we lost our marketing. It's a really big problem because I believe that our product is so much better than apartments and townhouses and for people where their housing choice is based strictly on their income. We're better for those people than a conventional house on land.

But we have to get that message out. They don't know that. They're living in an apartment and they don't know that we can provide a lower cost alternative without common law neighbors, without somebody living above them. That we provide a place where they can have a garden and a yard for their children and that we just have a better house and a better price. There's nobody getting that message out.

Normally there would be five dealers near any community and plenty of people would be on radio, television, newspaper and plenty of people would be thinking of us. But the past decade, manufactured housing retailers have been decimated, they're gone and there's a lack of marketing. So at this moment, UMH is engaging in a billboard campaign throughout Pennsylvania and we're increasing our newspaper and Internet marketing. You can see our rental units, the demand's as strong as can be and we're doing very well there.

I think that we have to market towards the people who should be home buyers to increase home sales and we're working on that at this moment. The weather, the time involved in learning how to do the 21st Mortgage paperwork, which is going to be beneficial and fine tuning our marketing, all impacted sales, January, February and March. But April was, there's no reason to believe it's anything great, but May is looking pretty good. May is looking pretty good.

I'll just add to that, 21st Century is a great company. It's one of Warren Buffett's companies. It's very well run. The paperwork Sam was talking about is really caused by the government. The government has implemented programs requiring a lot of documentation. It just became effective January 15, and of course 21st Century, 21st Mortgage, is required to get this documentation and it's really held up our sales.

I got it. Okay. So there was a bit of a pick up in your selling expenses this quarter, and again, you may have commented on this earlier, but was that related to the 21st Mortgage or is that something else?

No, it wouldn't be related to the 21st Mortgage. It would be related to we're opening sales centers. We're taking the communities we acquired and we're putting in inventory, putting in, you know, marketing more people to sell homes, different signage. All those things cost money and they're all an investment in future sales.

Does that mean that when I think about, if those are a lot of people, then that's probably more of a recurring expense, sort of in the $700,000 range.

Well, without going to the specific number, it is a recurring expense. But looking at -- here's how I see it. In 2006, we sold about $17 million worth of houses and made $2 million. We did that primarily through expansions and good locations. So we know we have been purchasing the land in front of communities and opening sales centers in what should be good locations. Currently, they're operating at losses.

A successful expansion or a successful sales center sells four homes per month and makes about, gross profit, $60,000 per month. We currently have none of those. None of our expansions, none of our sales centers are doing that. But that's what we project them to do for us to declare them successful.

And we own 84 communities today. We did $16 million plus in sales when we were less than half our size. We believe we're part of the housing market and part of the housing business. We have a lot of people who seek to buy homes in our 55 and older expansions, but they can't sell their current house to make the move. They sell a house for $300,000 and buy a house from us for $100,000 cash, but they need to sell their home.

So, we're making the decision, let's invest in these sales centers. Let's build them now. Let's get the right people, get the right marketing. Unfortunately, January, February and March were absolutely terrible, and so you have all the expenses with none of the income, but I have every reason to believe we are going to generate the income.

Okay. Thanks for the color.

Our next question comes from Joe Valdrini of Merrill Lynch.

Good morning. I just had a quick question about the shares outstanding. I can see year-over-year, you have about 4 million more shares outstanding. Could you break that down to me, how much is dividend reinvestment and other factors?

Most of that is, we have been raising $25 million, $30 million a year in the dividend reinvestment shareholder investment plan and that's given us the equity base to support our lines of credit, and put us in a position that we are a good credit and has enabled us to go from 6,000, 7,000 units to 15,000 units today. That's how we have raised capital over the last five years.

One of the most important things, since you mentioned it, is our capital structure. What we have done is we issued the $100 million in preferred stock and borrowed money to make these acquisitions. What you wind up with is a portfolio of about $600 million in properties that, if the value increases 4%, just from appreciation and inflation, that's $24 million on a base of just 20 million shares. So the earnings and the income that we can get from appreciation exceeds anything that we're talking about of how we can reduce expenses, increase sales, increase revenue.

The real beauty to this company is the fact that there's 20 million shares and, people count different ways, you could say $500 million in assets, you could say $600 million in assets. But with all those assets and 20 million shares, if we're able to increase the value through good operations or just increase the value through inflation or just increase the value because nationally property values go up, that appreciation will be significant to our shareholders.

Great.

I'd put that a different way in that there's so much concentration on FFO, FFO per share. And the basics of real estate is that you have two aspects: current income and appreciation, and they call that total return. Sam and I are very optimistic about what the total return will be on this portfolio of manufactured home communities.

Great. Thank you.

And the next question, I'm sorry, did you --

I was just going to say I have no other questions.

Okay. Our next question is from Rick Murray of Midwest Advisors.

Good morning, everyone. Just that we touched on it now, I wanted to ask a question about the capital structure. Help me understand the rationale for holding a securities portfolio that yields about 6.5% against paying a preferred security that costs you 8.25%.

Well, again, it's two separate things, the way we view it. We view the preferred stock, and we knew what we were doing � we paid. In fact, we joked about it. We paid the 8.25% on $91 million (multiple speakers) in preferred and went out and bought properties at 7.5%. But actually, that's apples and oranges.

We used the preferred equity as the equity to help us put together a tremendous expansion program that has worked and so we're very proud of us issuing the preferred stock. Owning, on the other side of the thing, owning a portfolio of $60 million in preferred stocks and common stocks that we own, and it's good that you separate the two. People often look at the securities portfolio and lump it together.

The common stock portfolio is the equivalent of owning real estate. The preferred stock is a separate element and provides us with a very high return and it provides us with liquidity. We're very proud of the capital structure, that we have $60 million in securities with only $12 million borrowed. It's been a very successful program for so many years, we wonder why people still question it because we have made a lot of money doing this and we continue to make money keeping the preferred and common stock portfolio.

Again, the main purpose of it is liquidity. It's great that we have the bank lines, it's great that the REITs have access to the capital markets. But on our own basis, we have liquidity and a strong balance sheet and that enables us to be aggressive in buying communities.

When we made these acquisitions, I think the biggest one was $69 million, and the seller said to us, could you handle it, and we said no problem at all. That helped us get the deal, it helped us make the deal and complete it. So we keep this liquidity and it doesn't really cost us any money and we recommend it to all REITs that they keep about 10% of their gross assets in liquid REIT securities.

I appreciate your points on liquidity and they're very good ones. I would argue that the presence of a substantial negative arbitrage on your balance sheet, particularly in light of where the dividend is, makes some investors somewhat uncomfortable. And given the current financing environment, it seems that there are better ways to optimize the current capital structure.

I'm not sure I follow that. We have, say we have $30 million, $35 million in preferreds and you sell the preferred and you pay off the 8.25% preferred that we own and you pick up, what, $700,000 in earnings? And then what do you do?

Right now, if somebody wants me to write a check for $10 million, $15 million, $20 million, I just write the check for $10 million, $15 million, $20 million. Having shrunk the balance sheet to pick up $700,000 in earnings, you certainly make a good point that that's a plus. But the reverse of that, you've gotten rid of a huge part of my liquidity and not at the present time.

Ultimately, we may do this, by the way, as we grow the company. If we can get an unsecured bank lines, if we can get to be investment grade. Even without being investment grade, the market for loans on manufactured housing communities are so good that we may very well borrow $100 million at 4.5% percent and call the preferred. But the two things are completely -- that's a capital decision we'll go at, but simply saying that we should sell the preferred because of the differential in premiums, it's only one factor. There are other factors that are very important.

I appreciate that. But I think if you look at, over the longer term, I would argue that you do have liquidity in the dividend reinvestment program. You have a public liquid security that you can issue into the market or to sellers of assets, but if you end up having to cut your dividend, those choices are going to become more difficult in the future.

Okay. We see your point, but these are things we do consider very carefully.

Thank you.

And showing no further questions, we will conclude the question and answer session. I would like to turn the conference back over to Samuel Landy for any closing remarks.

Thank you, Operator. I would like to thank the participants on this call for their continued support and interest in our company. As always, Gene, Anna and I are available for any follow up questions. We look forward to reporting back to you after our second quarter.

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