Earnings Call Transcript - UMH Q1 2023

Operator, Operator

Good morning, and welcome to the UMH Properties First Quarter 2023 Earnings Conference Call. Please note, this event is being recorded. It is now my pleasure to introduce your host, Mr. Craig Koster, Executive Vice President and General Counsel.

Craig Koster, Executive Vice President and General Counsel

Thank you very much, operator. In addition to the 10-Q that we filed with the SEC yesterday, we have filed an unaudited first quarter supplemental information presentation. This supplemental information presentation, along with our 10-Q, are available on the company's website at umh.reit. We would like to remind everyone that certain statements made during this conference call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements that we make on this call are based on our current expectations and involve various risks and uncertainties. Although the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the company can provide no assurance that its expectations will be achieved. The risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's first quarter 2023 earnings release and filings with the Securities and Exchange Commission. The company disclaims any obligation to update its forward-looking statements. In addition, during today's call, we will be discussing non-GAAP financial metrics. Reconciliations of these non-GAAP financial metrics to the comparable GAAP financial metrics as well as the explanatory and cautioning language are included in our earnings release, our supplemental information and our historical SEC filings. Having said that, I would like to introduce management with us today. Eugene Landy, Founder and Chairman; Samuel Landy, President and Chief Executive Officer; Anna Chew, Executive Vice President and Chief Financial Officer; Brett Taft, Executive Vice President and Chief Operating Officer; Jim Lykins, Vice President of Capital Markets; and Daniel Landy, Executive Vice President. It is now my pleasure to turn the call over to UMH's President and Chief Executive Officer, Samuel Landy.

Samuel Landy, President and Chief Executive Officer

Thank you very much, Craig. I would like to thank all of our loyal shareholders for their dedication to the company. We are pleased to have raised our annual dividend $0.02 per share or 2.5% in January. Over the past 3 years, we have increased the dividend by 14%. We look forward to additional increases in the future as we achieve increased earnings per share through the implementation of our long-term business plan. Normalized FFO was $0.20 for the quarter as compared to $0.19 last year, representing an increase of 5.3%. As we fill our vacant inventory, improve our operating margin and grow our sales profitability, we believe we will earn well in excess of our dividend with a target payout ratio of 80%. During the quarter, same-property occupancy increased by 100 basis points or 258 units to 87%. Gross sales improved by 70% to $7.3 million, which is a first quarter record. Most of the increase in occupancy was generated in March. Therefore, the revenue growth from this occupancy gain should be reflected in our second quarter results. Additionally, we are coming into our peak selling and renting season, which should result in further growth in occupancy and sales profitability. One year ago, our results were impacted by a lack of inventory to sell and rent homes which resulted in limited revenue growth for most of the last year. The COVID-related supply chain issues that had existed, combined with strong consumer demand for homes, resulted in manufacturer backlogs of 8 to 18 months depending on the factory. In our efforts to solve that problem, we ordered over 1,000 homes. We are on track to fill approximately 100 homes per month over the next 6 months. Carrying 1,000 homes is 500 homes above our normal inventory and means we have taken on a higher debt load, increased interest expense and increased carrying costs. Each month, as we reduce inventory, we should see increased income and reduced floor plan interest expense and carrying costs. The norm of manufactured housing is that we can order homes at the right price and have them ready for occupancy in 4 to 6 months from the order date. A return to this norm should allow us to carry less inventory, thereby reducing expenses and further improving earnings. During the first quarter, which is typically one of our slowest quarters, we converted 230 of our inventory homes to rental homes and sold 39 new homes. The increase in occupancy in conjunction with rent increases implemented in the first quarter generated an increase in monthly rental charges of approximately $550,000 as of April 1, 2023 compared to January 1, 2023. Demand remains strong throughout the portfolio, and we should be able to drive similar occupancy and revenue gains over the next few quarters. Our same-property results are in line with our expectations and continue to trend in the right direction. During the quarter, same-property occupancy increased by 258 units or 100 basis points. Our same property rental home occupancy rate increased from 93.5% at year-end to 93.9% at the end of the first quarter. Our same-property monthly rent per site increased 4.5%, and our same-property monthly rent per home increased 6.3% year-over-year. These improved operating metrics resulted in same-property income growth of 6.1% with expense growth of 6.8%, resulting in same-property NOI growth of 5.6% or $1.4 million over the first quarter of last year. Our expense ratio decreased sequentially from 42.6% in the fourth quarter to 42.1% in the first quarter of 2023. The occupancy of our inventory should result in accelerated revenue growth this year. That revenue growth, assuming similar expense growth experienced in the first quarter should result in high single-digit NOI growth this year. Gross sales for the quarter increased 70% to $7.3 million as compared to $4.3 million last year. Our gross sales margin improved to 32% from 30% last year. Net income from sales was $236,000 as compared to $103,000 last year. As we return to normal inventory levels, the profitability of our sales division should increase further. Included in net income are higher interest expenses and elevated inventory carrying costs. During the quarter, we sold 83 total homes of which 39 were new homes. Our average new home sales price was $136,000, and our average used home sales price was $45,000. We are financing approximately 76% of our home sales. We have a total of $68 million in home loans on our balance sheet that earns us an average interest rate of 6.7%. On the acquisition front, we acquired one newly developed community in Georgia containing 118 sites for a total purchase price of $3.7 million. This community was acquired through our opportunity zone fund. We anticipate strong demand for rental housing in this market. We continue to seek opportunistic accretive acquisitions that meet our growth criteria, but there are limited opportunities that fit our criteria. Last year, we acquired 7 communities containing 1,500 sites and an additional community containing 144 sites through our joint venture with Nuveen Real Estate. We are making progress implementing our business plan at our recent acquisitions and anticipate an improvement in operating results at those locations this year. We also continued to make progress filling our joint venture communities with Nuveen and hope to grow that venture in the future. On the expansion front, we are under construction of 4 communities to develop 216 lots. These expansions are located in Maryland, Pennsylvania, Tennessee and Indiana. All in all, we are very satisfied with our quarterly results, but we want our shareholders to understand our success is based on our willingness to invest in and work on projects that typically take 3 to 5 years to be accretive. Our industry and the entire business world are extremely competitive and looking for investments that will be immediately accretive. Therefore, there is a scarcity of such investment opportunities. On the other hand, when you invest time and money in projects with a 3- to 5-year time horizon, you have limited competition and a much higher chance of success. UMH has utilized this long-term business model to grow into one of the largest community owners in the country. We own 135 communities containing 25,700 home sites that are approximately 85% occupied. We also own 2 communities containing 363 sites in Florida through our joint venture with Nuveen Real Estate. Additionally, we own 9,300 rental homes and will own over 10,000 rental homes as we fill our inventory. We have 2,100 acres of vacant land that can be developed into 8,400 sites. This vacant land and our existing 4,000 vacant sites provide us with a long runway to grow earnings organically for the foreseeable future. We have the proven ability to acquire and improve communities, develop new communities and expansions, operate self-storage facilities in our communities, profitably sell financed homes and lease oil and gas rights in our energy-rich locations. We are also exploring the possibility of solar energy to further increase affordability for our residents while having a positive environmental impact. UMH is well-positioned to grow income and per share earnings through the successful implementation of our proven business plan. And now Anna will provide you with greater detail on our results for the quarter and for the year.

Anna Chew, Executive Vice President and Chief Financial Officer

Thank you, Sam. Funds from operations, or FFO, was $10.6 million or $0.18 per diluted share for the first quarter of 2023, compared to $8.5 million or $0.16 per diluted share for the prior year period, resulting in a 13% per share increase. Normalized FFO, which excludes amortization and nonrecurring items, was $11.7 million or $0.20 per diluted share for the first quarter of 2023, compared to $10.4 million or $0.19 per diluted share for 2022, resulting in a 5% per share increase. We were able to obtain these increases in FFO and normalized FFO despite our operating results being largely impacted by our investments to grow the company through value-add acquisitions and developments, inflation and rising interest rates on our short-term borrowings. Rental and related income for the quarter was $45.3 million compared to $41.6 million a year ago, representing an increase of 9%. This increase was primarily due to recent community acquisitions, the addition of rental homes and an increase in rental rates. Community operating expenses increased 11% during the quarter. This increase was mainly due to our recent acquisitions as well as an increase in payroll, real estate taxes and insurance. Community NOI increased by 7% for the quarter from $23.5 million in 2022 to $25.2 million in 2023. Our same-property results are trending in the right direction. It is important to note that while total community operating expenses were up 11%, same-property operating expenses were up 6.8%, which moderated from 10.2% last year and 14.5% in the fourth quarter. Sales of manufactured homes for the quarter increased 70% year-over-year from $4.3 million in 2022 to $7.3 million in 2023. We sold a total of 83 homes in the first quarter of 2023 as compared to 61 homes in the first quarter of 2022. There were 39 new home sales compared to 27 last year. The company's average new home sales price was approximately $136,000 during the first quarter of 2023 as compared to $95,000 in 2022, resulting in a 43% increase. The gross profit percentage increased by 2% from 30% in 2022 to 32% for 2023. As we turn to our capital structure, at quarter end, we had approximately $751 million in debt, of which $461 million was community-level mortgage debt, $191 million with loans payable and $99 million was out in 4.72% Series A bonds. 75% of our total debt is fixed rate. The weighted average interest rate on our mortgage debt was 3.91% at quarter end compared to 3.78% at quarter end last year. The weighted average interest rate on our short-term borrowings is 7.39% as compared to 2.52% last year. We are exploring opportunities to raise lower-cost capital to pay down our short-term borrowings, which would result in increased earnings per share. The weighted average maturity on our mortgage debt was 5.3 years at quarter end and 5.2 years at quarter end last year. At quarter end, UMH had a total of $247 million in perpetual preferred equity. Our preferred stock, combined with an equity market capitalization of $887 million and our $751 million in debt results in a total market capitalization of approximately $1.9 billion at quarter end. During the quarter, we issued and sold 2.1 million shares of common stock through our common ATM program at a weighted average price of $16.83 per share, generating gross proceeds of $34.8 million and net proceeds of $34.3 million after offering expenses. Subsequent to quarter end, we issued and sold approximately 688,000 shares of common stock through our common ATM program, generating gross proceeds of $10.3 million. Additionally, we issued and sold 874,000 shares of our Series D preferred stock through our preferred ATM program at a weighted average price of $22.52 per share, generating gross proceeds of $19.7 million and net proceeds after offering expenses of $19.3 million. Subsequent to quarter end, we issued and sold an additional 278,000 shares of our Series D preferred stock throughout preferred ATM program, generating gross proceeds of $6 million. On November 7, 2022, we entered into the second amended and restated credit agreement with BMO Capital Markets and JPMorgan Chase Bank which increased our credit facility to $100 million with a maturity date of November 7, 2026. On February 24, 2023, we increased this facility to $180 million. As of quarter end, the amount outstanding under this facility was $100 million and the interest rate was 6.59%. This new agreement enhances our liquidity and financial flexibility, allowing us to continue to execute our business plan. On March 9, we entered into a $30 million revolving line of credit with Triad Financial Services that is secured by rental homes and rental home leases. We view this as a good short-term source of capital to invest in our rental program until we are able to secure long-term capital at more advantageous rates. We are pleased to have another line secured by our rental units. From a credit standpoint, our net debt to total market capitalization was 38.1%; our net debt of securities to total market capitalization was 36%; our net debt to adjusted EBITDA was 7.7x; our net debt less securities to adjusted EBITDA was 7.2x; our interest coverage was 2.4x; and our fixed charge coverage was 1.7x. From a liquidity standpoint, we ended the quarter with $32.9 million in cash and cash equivalents and $80 million available on our credit facility, with an additional $400 million potentially available pursuant to an accordion feature. We also had $86.3 million available on our other lines of credit for the financing of home sales and the purchase of inventory and rental homes. Additionally, we had $39.3 million in our REIT securities portfolio unencumbered. This portfolio represents approximately 2.2% of our undepreciated assets. We are committed to not increasing our investments in this week securities portfolio and have, in fact, sold certain positions. During the quarter, we paid off 2 mortgages secured by 14 communities for a total of $45 million. Given the high interest rates, we opted not to place mortgages on these communities until interest rates stabilize. We currently have 50 free and clear communities, including the communities that are being utilized in the unencumbered asset pool of our unsecured line of credit with a value of approximately $500 million. We have the ability to place long-term debt on these communities when we believe it is in the best interest of the company. We are well-positioned to continue our growth initiatives. And now let me turn it over to Gene before we open it up for questions.

Eugene Landy, Founder and Chairman

Our goal is access to long-term patient capital so that UMH can provide much-needed affordable housing. An investment in UMH is an investment in providing the nation with quality affordable housing. UMH's income was rated 100% social by MSCI. We also have a second-party opinion from Sustainalytics and other recognized ESG certifying authority, certifying the positive social impact of UMH and improving the framework for a potential sustainable debt instrument for security in the future. UMH believes in good faith and fair dealings with everyone, including our residents. We believe that limiting our rent increases while our competitors are aggressively raising rents will result in a strong tenant base and a durable income stream. This policy should result in lower turnover, higher occupancy rates, and higher sales prices and most importantly, satisfied residents. The economic markets have created a challenging operating environment. UMH remains well positioned because of the strong fundamentals of our business as well as the experience garnered and instilled in our team over the past 55 years. The strong fundamentals are represented through our same property occupancy growth of 100 basis points and our sales growth of 70% during the quarter. The new home inventory we are carrying together with the capital invested for value-add communities, expansions and developments that are not accretive yet is currently negatively impacting our results, but it will allow us to grow earnings substantially throughout the remainder of the year. Our information pace is in line with our expectations and we anticipate further improvement as we move into our peak demand season. We believe that UMH should be particularly attractive to ESG investors because of the positive societal benefits provided by our business plan as well as our ability to grow earnings over time. Long-term patient capital allows UMH to focus on providing the highest quality living our industry can provide. Short-term earnings don't fully represent an accurate depiction of the value created by the company. Over time, this will become apparent to our earnings and valuation growth. We look forward to rewarding our shareholders for a growing dividend and stock price appreciation. Our policy is to pay distribution to shareholders and raise new capital for expansion and acquisitions.

Operator, Operator

And our first question will be from Keegan Carl from Wolfe Research.

Keegan Carl, Analyst

Maybe to kick things off, your home sales rebounded nicely in the quarter. So I'm just kind of curious how we should think about the cadence of the rest of the year and what you're viewing internally as a reasonable run rate?

Brett Taft, Executive Vice President and Chief Operating Officer

Yes. So first of all, I'd say that we're very pleased with the 70% increase in sales during the first quarter. We're pleased with the average new home sale price being $136,000. Our average home sale price being $87,000. Our properties are continuing to report very strong demand for sales. We have inventory set up. We're just about set up in the right locations and our pipeline of pending sales right now is about $3 million. I'd also add to that, that our April sales results did outpace April of a year ago. So we're on track to continue to grow sales throughout the year. Our second and third quarter sales results are typically the strongest results we have during the year. So I wouldn't anticipate a 70% improvement in sales during those quarters, but we do anticipate it to be up. And we think we've got a very good chance of breaking the $27 million gross sales record that we set 2 years ago.

Keegan Carl, Analyst

Super helpful. One for Sam. So in the press release, you mentioned about potential for high single-digit same-store NOI growth. Just kind of curious, what would it take for that to actually happen because it's yet another quarter where the same-store expense growth outpaced revenue growth?

Samuel Landy, President and Chief Executive Officer

Well, at this moment, we're facing two problems that are still COVID-related. Had we added those 400 rental units last year, we added 400, but had it been 800, so we're 400 short. Our revenue would be up $400,000 per month for 3 months, which would have greatly helped that FFO. And then the second thing is the interest expense. And due to COVID, when we had to order a substantial amount of homes beyond what we would normally carry so we could get to the front of the line and get these homes. And so that interest expense, again, is negatively impacting us, probably $1 million or $5 million or something like that for the quarter. So there's about $2.5 million that we would have made this quarter but for COVID. And as we go through the future, demand is incredibly strong everywhere. I just heard about in Marion, Ohio, we're renting homes today for $999 per month at a location where we never imagined rents would be high. We started out at about $800 per month. And now as those homes turn over and new homes are rented, it's $999 per month. Same with sales. We're hearing higher sales prices than we ever heard before. And we expect to go back to the true benefit of manufactured housing is just-in-time inventory that we can carry minimal inventory at the communities, order homes, get them in 4 to 6 weeks, fully set up in 8 weeks and sell them and rent them. And that will dramatically decrease the interest expense. And on top of that, when you're carrying homes, you have to heat them, you have to maintain them. So it creates a lot of additional costs carrying excess inventory. And that again was a necessity of COVID. And again, the nature of manufactured housing and part of the greatness of the industry is how quickly we could provide houses without carrying high inventory. So we expect those expenses to decrease additionally. We have thoughts on how to reduce our insurance costs in the future through captives. And we have other means we see that we could reduce what homes cost us before we sell them, which will increase our sales profits. So we see a very, very bright future coming up.

Brett Taft, Executive Vice President and Chief Operating Officer

Just to add, sorry, I was just going to add a little bit to what Sam is saying. So during the first quarter, we filled 230 units, and that was compared to about 52% a year ago. So we are really outpacing what we were able to accomplish all of last year, which does put us in a very good position for that revenue growth to outpace expense growth and ultimately end up driving that high single-digit same property NOI. As we mentioned in the script and in the press release at the beginning of April, the occupancy gains and the rent increases implemented in the first quarter resulted in April's rent roll being $550,000 above January's rent roll. Looking at our same-property results, income was up $2.5 million, which was 6.1%. Another $800,000 brings it to $3.3 million. We're very close to that. That would be 8% income growth with the same expense growth, which would bring us in the 8.5% to 9% NOI growth. So we think we're very well positioned to meet that in the coming quarters.

Keegan Carl, Analyst

Got it. Just on the topic of insurance that I know Sam brought up. I guess a two-part question here. One, what are you guys expecting your renewal for the year if you haven't gotten it yet? And two, specifically what's going on in the state of Florida, how does that impact your appetite for further development with your new JV?

Anna Chew, Executive Vice President and Chief Financial Officer

We just received our insurance renewal notice, which shows about a 7% increase. We are pleased with this figure, especially since some of our competitors are experiencing increases of over 50%. In terms of our Florida communities, we are satisfied with their performance and the ongoing developments there. We have one additional community planned for development in Florida and will continue exploring further acquisitions, not only in Florida but in other regions as well.

Keegan Carl, Analyst

Got it. And then the last one for me, just can you give us a bit more of an update on the opportunity zone fund and what the pipeline looks like from here on out?

Brett Taft, Executive Vice President and Chief Operating Officer

For the opportunity zone fund, that fund closed. So the 2 communities that are currently owned, that will be in the fund. And nothing in the near term for raising a new opportunity zone fund or acquiring any more properties. It's just right now the 2 properties that we have.

Eugene Landy, Founder and Chairman

I want to emphasize that what we're doing with UMH is quite unique. We are focusing on building housing to address the housing crisis. The main issue in the U.S. is financing, as constructing 1,000 units costs a significant amount, around $250 million, and completing the project can take several years. However, we believe that over time, this investment will yield substantial returns while also offering affordable and workforce housing. The challenge lies in securing the necessary capital and ensuring investors are satisfied while we grow the company, whether it involves $50 million or $75 million in inventory, or even $100 million in land improvements. These expenses can make it appear as though our growth is slow, even though we are achieving outstanding results. To address this, we've devised a strategy to attract long-term capital. We are pursuing this through two methods: first, by promoting our securities as social and ESG-compliant, with endorsements from leading companies that validate our ESG claims. While I used to assert we were 100% affordable, we're currently at 97%. Our homes meet all the affordability criteria, which ideally positions us to attract ESG funds from the estimated $10 trillion available globally. We hope to secure investments through preferred stock, bonds, or common stock recognized as social, providing us with not only capital but also lower-cost capital. The second approach involves exploring investment opportunities to encourage long-term capital investments in housing. After ten years, there would be no capital gains tax, attracting investors with a long-term perspective looking at returns post-capital gains. However, we've encountered legal complexities regarding the requirement to use profits from previous transactions to invest in capital gains. To simplify this issue, we proposed that if investors put money into an opportunity zone to build affordable housing, they could defer capital gains taxes for ten years. The government typically regards this deferral as zero in their financial scoring. We are actively discussing this proposed law with various stakeholders, and the feedback has been overwhelmingly positive. It enjoys bipartisan support, and we believe that if we can amend the law, our existing subsidiary can efficiently engage in opportunity zones to acquire necessary approvals. Our studies show we could potentially create an additional 3,000 sites. Each manufactured home community requires about $300 million to develop and a further $300 million for home installations, highlighting the pressing need for housing. We are optimistic about the direction we are headed, but there is still work to be done, so stay tuned for further updates as we strive to make this a reality.

Operator, Operator

And the next question is from Rob Stevenson from Janney.

Rob Stevenson, Analyst

With all the homes that you guys are going to be taking delivery on this year, how do you expect same-store occupancy to trend throughout the year from the sort of 87% that you're at now?

Samuel Landy, President and Chief Executive Officer

Brett will clarify my figures. I believe we currently have around 4,000 vacant sites, with 1,000 of those sites occupied by nonrevenue-producing homes that we plan to convert into revenue-generating properties, in addition to the 600 homes that account for the 5% vacancy in our existing rental units. This is significant because we expect to fill more than 100 lots each month, which will help us occupy those 1,000 units in inventory. That leaves us with 2,400 vacant lots, which is relatively low. If you look at Page 12, it illustrates the percentage of occupancy across different states. Once occupancy exceeds 80%, these communities operate efficiently, generating new revenue with only about a 30% expense ratio. Currently, most states show over 80% occupancy, suggesting that the remaining homes should yield approximately 70% profit, contributing positively to income and funds from operations. We're filling 100 units monthly, and once we reduce our vacant lots to 2,400, our focus will turn to obtaining approval for expansions and continuing our successful acquisitions. We recently visited Dothan, Alabama, which is a prime example of a turnaround property that requires upgrading after years of deferred maintenance. It's a location with promising demographics and more communities like this can be developed. Filling the 1,000 units and boosting home sales presents one challenge, but based on current business trends, it's manageable. The bigger challenge lies in maintaining our inventory of vacant lots for future growth, which we actively address every day.

Brett Taft, Executive Vice President and Chief Operating Officer

Absolutely. And so the 1,000 homes are delivered and at the sites. So they're basically ready for occupancy, which is why we believe we'll be able to fill 100 or more a month going forward. There's always some home removal inherent in value-add acquisitions. So it won't be a 1,000-unit increase in occupancy, but it could be 800. If we increase occupancy by 800, that brings same property occupancy to about 89%.

Rob Stevenson, Analyst

That's great. And then what type of rental rate increases are you passing through to tenants on renewals today given the market environment?

Samuel Landy, President and Chief Executive Officer

Existing residents, we only increase rents 5%, but on turnover, we go to market. And that Marion, Ohio, I talked about where you're going to $999, that's probably a substantial increase from the $800.

Brett Taft, Executive Vice President and Chief Operating Officer

It can certainly be 20%. I know the average last year was about 7%. I'd anticipate it being in that range, maybe a touch higher.

Anna Chew, Executive Vice President and Chief Financial Officer

If you consider it, even though we are only increasing rents 5% for existing tenants in our rental homes, our average for the quarter was over 6%.

Eugene Landy, Founder and Chairman

This is Gene Landy, the Chairman. Some people don't understand why we don't increase rents 10% of our expenses go up 10%. And we believe we're creating a market for our products. We want to have a product that is the best buy in the industry. We want to have tenants to realize they're getting a good deal. And the tenants, they shop, they know what the apartment rent costs. There may be $400 or $500 a month more. They know what the house cost, they know what the payments are. So we are keeping our pricing that we're the best buy in housing because we maintain the land in every case, even if we sell the home, we still have the land. And if we rent the home and land, we have that big investment that over the years, we'll make a lot of money. So we want to be able to make money now and in the future. But we're very interested in building a large company that we can continue to build housing and at the same time, give the residents the best buy they possibly can. So we recognized that we were a little squeezed with expenses going up. Some companies, we bought at 11%, 12%, increased to 11%, 12%. We decided to keep the rents at 5% because it improved our competitive position, which is basically against apartments and also provided our ability to attract tenants and long-term tenants who stay the cost of having them goes down. So we don't think that you lose the 4% or 5% you could have raised the rents. It's a smaller number. We don't know exactly what that number is, but we're seeing on turnover. Our turnover is much lower than you would expect given that the average apartment person stays a year, 1.5 years, and the average owner even an owner house in the United States only, say, 7 years. So with those kind of average occupancies, we have much higher turnover. And our turnover is a fraction of that. And the time to stay frankly, they're better tenants because they are cost conscious and they know they have a great deal with UMH.

Rob Stevenson, Analyst

Okay. That's helpful. And then can you talk about what you're seeing on a like-for-like basis in terms of pricing on new homes to you guys, sort of striking the difference between the $136,000 sales price this quarter versus the $95 a year ago. I mean, how much more cost inflation is there on a year-over-year since 3 or 6 months ago, is there to you guys on your price for homes? And what is that expected to be looking forward?

Samuel Landy, President and Chief Executive Officer

I would imagine more of our increase in prices is due to expansions coming online and are selling multi-section homes in great markets. In terms of inflation from the manufacturers, we were stuck between a rock and a hard place on getting homes during COVID and the prices to us did go up, but we do believe we have solutions to that. Number one, the manufacturers are dropping their price increases. But number two, we think by coming up with a limited number of home models that we want and going to the manufacturers with very specific requirements and what houses we want and putting those out for bid that we can, again, reduce the cost of the homes to us.

Brett Taft, Executive Vice President and Chief Operating Officer

And home prices are down a little bit from 3 or 6 months ago, not substantially, and we would like to see them to decrease further, obviously, but when prices have come down, at least 10%, potentially 15%.

Rob Stevenson, Analyst

That's interesting. And then what rate are you providing financing on new home sales today? Are you guys the only financing game in town for new home sales in your communities? Or is there increasing numbers of third-party financing available today for residents?

Samuel Landy, President and Chief Executive Officer

We always allow outside financing, other financing available, but our rates as they compare to other ...

Brett Taft, Executive Vice President and Chief Operating Officer

Yes. So our rates are at about 7.5% today on new home sales, used home sales were what?

Anna Chew, Executive Vice President and Chief Financial Officer

9.99%.

Brett Taft, Executive Vice President and Chief Operating Officer

So even though those sound like high rates, they're actually relatively in line with conventional mortgages, which is what we're trying to do is pass through some of the affordability to our tenants. Our competitive finance companies in the industry for good credit 10% down, you're probably looking 8%, 8.25%, a little bit lower credit, you can pretty easily get up in the 9% to 10% range and in some cases, higher.

Rob Stevenson, Analyst

Okay. And then last one for me. What are you guys seeing in terms of the trend and size of sort of bad debt or delinquency today in terms of the portfolio? Is it getting better? Is it staying flat?

Anna Chew, Executive Vice President and Chief Financial Officer

It's pretty much staying flat. Our write-offs are usually approximately 1% of our total rental revenue and it's staying about the same. Quarter-over-quarter, it changes. Sometimes, it's a little under 1%, sometimes it's a little over 1%, but on average, it's about 1%.

Samuel Landy, President and Chief Executive Officer

It's important to think about manufactured home communities and how receivable works. So you could have nonpayment of lot rent, and there's generally a house sitting on that lot. So if the person turns out that they can't pay the rent, and that's an eviction, it's either going to be a home that's completely obsolete and going to be junked, where we're going to put a brand-new home on and earn a sales profit that's going to pay off that unpaid rent, and then we're going to collect a higher rent. So that's what happens in the case of unpaid lot rent resulting in an eviction. So even if you had a write-off, you're making money from that bad situation. And then you have rental homes that turn over. That's more of a real receivable in terms of a tenant gave us 1 month rent, 1-month security. If they can't pay and evict them, you do have to write off that rent, and there's not really an upside. But then you also have your receivable on your notes when people finance the home, and they couldn't pay. And due to the housing market today, most of the time, you're going to take back in the event you had somebody behind, you're going to take back that house and be able to sell it for more than you did the first time, so there's not going to be a loss there. So the only real receivable is on rental homes. And because we act as quickly as possible through the court process, we keep that to a minimum.

Brett Taft, Executive Vice President and Chief Operating Officer

And our first quarter collection rate was 98.7%. Our April collection rate was about 97%, and that will grow in line with the first quarter over the coming weeks. So from a collection standpoint, all is as it normally is.

Operator, Operator

And the next question is from Craig Kucera from B. Riley FBR.

Craig Kucera, Analyst

Congrats on the Triad line of credit. Are you seeing other banks showing interest in financing rental holds at those kinds of terms?

Anna Chew, Executive Vice President and Chief Financial Officer

Yes, we are. And we continue to look at other banks, and we continue to try to increase our banking facilities on those rentals because it is an untapped market for us. It is an untapped area where we can put additional financing on.

Craig Kucera, Analyst

Got it. And can you tell us how many homes and rental leases are supporting that $30 million loan?

Brett Taft, Executive Vice President and Chief Operating Officer

So that's the line of credit ...

Anna Chew, Executive Vice President and Chief Financial Officer

That is the line of credit that we have, and right now, it is fully available. We have not utilized anything from that line of credit yet.

Craig Kucera, Analyst

Got it. So does it work where basically you add homes to access the debt? Or have you just sort of allocate a certain number of homes and then you can pull that down if and when you need it?

Anna Chew, Executive Vice President and Chief Financial Officer

No, we access it when you put in the homes that we need to put in. Last time A lot times what we will do with will go from our line of credit for the floor plan directly to the line for the rental homes.

Craig Kucera, Analyst

Okay. That's helpful. I appreciate the color on how you've been handling inventory. Obviously, a tough time with all the supply chain issues during and sort of post-COVID. I think you're currently carrying about $88 million in inventory. Is the normalized level closer to what it was pre-pandemic, call it, maybe $25 million to $30 million?

Samuel Landy, President and Chief Executive Officer

Well, because we're larger, I'd say we aim to reach $50 million in the future, and we have significant plans to achieve that. One of the reasons our inventory is currently high is that we resolved the issue of acquiring homes from manufacturers. However, after solving that, we encountered delays with utility companies, local inspectors, and setup crews being overwhelmed. If we had been able to set up these homes more quickly, we might have occupied even more units than we did. I believe we did an exceptional job, and it's impressive how many homes we filled. Nonetheless, we still face some delays related to ongoing supply chain issues, but we are addressing those daily, and we intend to reduce our inventory from 1,000 units down to 500, and possibly maintain it at 400 next year.

Craig Kucera, Analyst

Got it. So you think you'd probably be able to work through most of that or at least get it to a normalized level by late this year or early next year?

Samuel Landy, President and Chief Executive Officer

Yes, correct.

Craig Kucera, Analyst

Okay. Great. Just given a much tougher home purchasing environment than we were a year ago, are you seeing any change in the credit quality of people coming to buy homes?

Samuel Landy, President and Chief Executive Officer

From the application perspective, we frequently see many applications being denied. However, it is impressive that approved applications reveal blue-collar workers currently enjoying higher wages, greater job mobility, and overall better circumstances. During my calls to various communities this morning, feedback indicates unprecedented results, including rising rents, escalating home sale prices, and a quick turnover of homes in inventory. The employment situation appears stable. Our proximity to major companies like Smucker's and Scott, along with various manufacturers, ensures a steady supply of essential goods. We are also present in Elkhart, Indiana, where concerns about high interest rates and gas prices affecting the RV industry exist, yet things are still looking positive. A significant initiative we're undertaking is diversifying our geographic presence, as we believe that owning more communities and spreading our rental properties will enhance the stability of our income stream, even amidst any regional disruptions. We are confident that our company growth will increase funds from operations per share, and even if it remains steady, the diversification of our income sources should lead to a decrease in the stock yield due to the stabilization of our income stream.

Craig Kucera, Analyst

Okay. Great. And I know you mentioned in your commentary that there were limited acquisition opportunities, but are you guys working on any? And should we expect any closings over the next quarter or two?

Brett Taft, Executive Vice President and Chief Operating Officer

Not over the next quarter. I mean, deals can come together quickly. So I really can't touch on the third quarter yet. We're looking at a lot of opportunities. At this point, we just haven't been able to find pencils. We also closed on 7 properties, 1,500 sites for $88 million last year, of which most of that was value-add acquisitions. So we're working on improving those properties, bringing in new homes, getting those numbers up, making them accretive to earnings and looking at the whole picture and determining when to move forward on future deals.

Operator, Operator

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Samuel Landy for any closing remarks.

Samuel Landy, President and Chief Executive Officer

Thank you, operator. I would like to thank the participants on this call for their continued support and interest in our company. As always, Gene, Anna, Brett, and I are available for any follow-up questions. We look forward to reporting back to you in August with our second quarter 2023 results. Thank you.

Operator, Operator

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