UMH Properties, Inc.
Q2 2015 Earnings Call Transcript

Published: 7 Aug 2015

[Operator:]

Good morning, and welcome to UMH Properties Second Quarter 2015 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. It is now my pleasure to introduce your host, Ms. Nelli Madden, Director of Investor Relations. Thank you. Ms. Nelli Madden, you may begin.

[Nelli Madden:]

Thank you very much, operator. In addition to the 10-Q that we filed with the SEC yesterday we have filed an unaudited quarterly supplemental information presentation. This supplemental information presentation, along with the 10-Q are available on our website at umh.com. 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 our second quarter 2015 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.

[Samuel A. Landy:]

Thank you very much, Nelli. Good morning, everyone, and thank you for joining us. We are pleased to report our results for the second quarter ended June 30, 2015. Normalized FFO increased 9% for the quarter and 25% for the six months of 2015, as compared to the same period a year ago. We have continued to execute our growth strategy of using debt preferred stock and equity raised through our dividend reinvestment plan to purchase well located communities in our target markets, including the energy rich Marcellus and Utica shale regions. We have increased the number of our developed home sites by 8% over the prior year period. During the quarter we acquired three manufactured home communities located in Pennsylvania for an aggregate cost of $8.8 million. These all eight communities total approximately 480 developed home sites situated on 180 acres. This equates to $18,000 per site or $29,000 per occupied side, which is well below replacement cost. The weighted average occupancy rate for these communities is 63%. Additionally, over the past five years we have more than doubled our portfolio by acquiring 64 communities totaling 8,800 developed home sites. Our portfolio is now comprised of 92 communities with 15,700 developed home sites situated on 4,600 total acres in seven states. 57% of our acreage is in the energy rich Marcellus and Utica Shale region. Shale development is fueling the revitalization of this region. Industrial development in the region is also being driven by pipeline construction to reach end consumers and gas processing plant construction. These multi-billion dollar projects continue to move forward despite the recent drop in oil prices. We continue to make progress on our business model of purchasing communities in strong geographic areas, below replacement cost and upgrading them. We are very excited about our previously announced agreement to acquire six manufactured home communities containing approximately 2,200 developed home sites for $68.6 million. These communities are an excellent fit to our existing portfolio and with an average occupancy of 61% they have strong organic growth potential as we make the necessary improvements. We anticipate financing this acquisition with 10 year low cost fixed rate mortgages which will result in an accretive leverage return on equity. This transaction is expected to close in two tranches over the next two quarters. Our same property results have continued to improve substantially increasing the value of our communities. Following the positive trend set in our first quarter, same property occupancy rose 90 basis points over the prior year period. Revenue increased 8.2% and expenses decreased 50 basis points resulting in an increase in same property NOI of 16.5% for the second quarter. For the six months, same property NOI increased 17.8%. Our strong year-over-year same property NOI growth continues to validate our business model. We anticipate adding an additional $100 million in communities over the next few years which will enhance long-term value to our shareholders. Community NOI increased 18% to $8.8 million for the second quarter of 2015 as compared to $7.4 million for the same period in 2014. Overall, occupancy has increased 30 basis points from 81.7% a year ago to 82% currently. Current overall occupancy reflects 2015 acquisitions of approximately 440 sites with the weighted average occupancy of 70.6%. Therefore, same property occupancy is a more meaningful measure of demand for our sites. Same property occupancy has increased by 30 basis points sequentially and by 90 basis points year-over-year from 82.5% in the second quarter of 2014 to 83.4% currently. The macroeconomic environment and current housing fundamentals continue to favor home rentals. Net household formations appear to be recovering from their pre-recession lows. The overall job market has strengthened. Apartment occupancy rates and rental rates continue to climb and are now at all-time high with the national average monthly rent for an apartment unit now at $1,155. These factors contributed to an increase in demand for affordable rental homes. We added an additional 300 homes to our rental inventory during the first half of 2015. At quarter end, we owned approximately 2,900 rental homes representing 18.8% of our total home sites versus 2,100 rental homes at the end of the prior year period representing a 38.1% increase in rental homes. Rental home occupancy continues to be strong and it's currently at 95%. Occupied rental homes now represent 21.8% of total occupied sites versus 16.9% of total occupied sites at the end of the prior year period. We expect to add a total of 700 rental units by year end. With regard to sales, the US home ownership rates fell to 63.4% in the second quarter of 2015, according to U.S. census. This is down from 69.2% at its peak at the end of 2004. Conventional home sales have been increasing this year but first time buyers, historically a significant percentage of new home sales are still playing a small part in the market. Tight lending standards and slow rates of growth have continued to negatively impact our sales. Sales of manufactured homes remain at low levels with $1.6 million in homes sold this quarter as compared to $2.4 million a year ago. Although home sales were down this quarter as compared to a year ago subsequent to the quarter end we’re seeing strong signs of improvement. Additionally because the prices of traditional site built homes continue to rise, coupled with record high monthly apartment rents the manufactured housing value proposition today is very compelling. And now Anna will provide you with greater detail on our results for the quarter.

[Anna T. Chew:]

Thank you, Sam. Core funds from operations or core FFO was $3.1 million or $0.12 per diluted share for the second quarter of 2015 compared to $3.2 million or $0.15 per diluted share for the second quarter of 2014 which included $707,000 in realized gains on the sale of securities. Normalized FFO, which excludes realized gains on the sale of securities and other non-recurring items was $3.1 million or $0.12 per diluted share for the second quarter of 2015 compared to $2.5 million or $0.11 per diluted share a year ago. Normalized FFO was $6.3 million or $0.25 per diluted share for the six months compared to $4.4 million or $0.20 per diluted share a year ago, representing 25% increase. Because the $40 million net proceeds from our recent financing which was completed at the end of the first quarter have not yet been fully deployed, core FFO and normalized FFO were impacted this quarter by an increase in interest expense. The proceeds from this financing will go towards funding our acquisitions which will generate additional per share earnings accretion once they are fully deployed. Rental and related income for the quarter was $17.9 million compared to $15.8 million a year ago, representing an increase of 14% primarily due to the acquisitions made since the prior year period, increased occupancy rates and the addition of rental homes. As quarter end we had 2,900 rental homes as compared to 2,100 a year ago. Same property NOI increased 16.5% this quarter over the prior year period driven by increases in rental revenue, reduced expenses and occupancy gains. Total community operating expenses for the quarter were 51% of rental and related income representing a 190 basis point improvement from the 52.9% expense ratio for the prior year period. As we noted in the past our expense ratio will continue to improve as we upgrade and integrate our acquisitions. Total community NOI amounted to $8.8 million for the quarter compared to $7.4 million a year ago, representing an 18% increase. Our loss from the sales operation, including interest expense, remained unchanged at approximately $500,000 for the quarter. As of quarter end our capital structure consisted of approximately $289 million in debt of which $224 million was community level mortgage debt and $65 million were loans payable. Almost all of our mortgage debt is fixed rate at a weighted average interest rate of 4.6% and a weighted average maturity of 6.2 years. We also had a total of $92 million in perpetual preferred equity at quarter end. Our preferred stocks combined with an equity market capitalization of $255 million and our $289 million is debt gives us a total market capitalization of approximately $636 million at quarter end. From a credit standpoint; our net debt to total market capitalization was 44%. Our net debt less securities to total market capitalization was 34%. Our fixed charge coverage was 1.6 times, our net debt-to-EBITDA was 8.7 times and our net debt plus securities to EBITDA was 6.7 times. From a liquidity standpoint, we ended the quarter with $9 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. We also had $16 million available on our revolving lines of credit for the financing of home sales and the purchase of inventory. In addition, we have $63 million in marketable REIT securities, representing 10.3% of our un-depreciated assets. This portfolio is encumbered by $13 [ph] million in margin loans at 2% interest. Generally 50% of the market value of REIT securities maybe borrowed on margins. After the successful completion of our recent refinancing, we are negotiating the refinancing of several of our existing communities as well as the financing of four of the to be acquired communities to help fund our growing acquisition pipeline. We expect to raise approximately $75 million to $80 million, providing $60 million to $65 million of net proceeds after the retirement of existing debt. We anticipate that this will have a favorable impact on FFO given today's attractive interest rate environment and the leverage returns on equity that our acquisitions will generate. And now let me turn it over to Gene before we open it up for questions.

[Eugene W. Landy:]

Thank you Anna. UMH is on course to increase rental income from $64 million in 2014 to $75 million in 2015 and $85 million in 2016. Housing demand appears to be increasing nationwide in all areas. Factories are reporting one longer lead times. It now take six to eight weeks to buy and receive a home from the factory to our sites. These lengthier time schedules delayed our rental progress in the first half of the year. But with increased demand we now anticipate 700 new units by year end representing an increase of 200 homes from our original budget. Our interest costs have risen as we borrow money in anticipation of use. Here again the offsetting revenue gains will be coming in the second half of the years. As sales loss impacts our 2015 results we remain confident that sales will improve. UMH continues to invest in sales centers and new sales personnel. The market is strengthening and we anticipate going from a loss to breakeven and eventually to profitability. UMH is optimistic as to the future prospects of housing, affordable housing and manufactured homes. Management will recommended to the board of directors the continuation of current $0.18 a quarter or $0.72 annual per share cash distribution. We will now be happy to take questions.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions]. Our first question will come from Brian Hollendon of Sidoti.

[Brian Hollenden:]

Good morning and thanks for taking my call.

[Anna T. Chew:]

Good morning, Brian.

[Brian Hollenden:]

Anna you mentioned acquisition leverage returns on equity. Can you give us a basic forecast of what -- what you're looking for the recent $68 million acquisition on equity.

[Anna T. Chew:]

Well, because I don't have the final interest rate on the financing I don't want to give out a total number but it will be double-digit. We believe it will be double-digit.

[Brian Hollenden:]

Okay, and then…

[Eugene W. Landy:]

If I can add to that, the advent of Freddie Mac into the housing market, the manufactured housing market has been a real plus to the company. We're very pleased with the availability of long term financing. It's 10 year financing with a 33 year payout. And it is set at percentage over 10 years treasuries. And as you know 10 year treasuries are still at a relatively low level. We anticipate a very favorable cost of funds and of course we budget return on the investments. But as Sam pointed out in his opening remarks we are buying these things with substantial vacancies and the real long term gain and the accretive nature of the acquisition will depend on our filling the vacant sites.

[Anna T. Chew:]

I do want to also add that the rates that we received at the end of the first quarter, which was about 3.9, I think going forward we'll probably be in the 4, 4.25 range for the next closing.

[Brian Hollenden:]

Okay and then if I could just ask a follow up. Talking about demand, can you tell us a little bit about the demand in the Marcellus region for rentals particularly in the quarter and then if you can provide sort of maybe a more longer-term outlook.

[Samuel A. Landy:]

Let me begin by telling you how our PF acquisitions have done because it's really impressive. This year we have 37 communities that their rental revenues running more than 10% over what there were a year ago and the top 5 revenue increases are all acquisition. Country Side State [ph] in Indiana which we purchased in January 2012, the revenue was up 54% or $184,000; Valley Hills in Ohio that we purchased in March 2014, revenues up 51% or $347,000 annualized. Holiday, which we purchased in Nashville, Tennessee in April 2013, revenues up 34% or $422,000. Colonial Heights, which we purchased in September 2012 in Pennsylvania, revenue -- this is just for this year, it is up 29% or $138,500. Little Chippewa that we purchased in Ohio in November 2013, revenues up 29% or $47,000. So what we're finding is what we already knew. If you buy these communities, make the necessary improvement, add marketing and then add rental units, the demand is substantial. When we price the rental unit at $750 per month we look at what equivalent apartments are in the area. We're looking for a 20% gross return on what we pay for the house. So if we were in the market where 750 was not the number what we can use a less expensive house and we can get the rents down to $650 a month, and at that price we're able to fill up anywhere and this -- these quarters we've had two additional communities achieve 100% occupancy and the occupancy just keeps increasing. Our team out in this field is doing a fantastic job, putting the homes in, getting them setup and getting them filled with people who can and do pay the rent. So it going very well.

[Eugene W. Landy:]

The only think I like to add to that is we are talking about the 1,000 square feet of house 3 bedrooms, 2 bath and Sam was setting a rental of 750 a month, which we think is more than reasonable and provides badly needed affordable housing.

[Brian Hollenden:]

Great, and if I can just ask one follow-up and then I'll jump back in the queue. Community operating expenses as a percent of revenue of rental income trended down year-over-year to 51%. How low can you ultimately get that ratio? How should we think about that?

[Samuel A. Landy:]

Okay. So it's the same answer. Rev -- expenses will be 50% of revenue if we are paying the water and the sewer. If it's separately metered we can get it down to 30%. We can get expenses down to 30% of revenue. Rental units may in fact ultimately improve these ratios. It's only one year ago that UMH decided to go from 300 rental units added in a year to 700 and we did that and achieved it. I believe that the cost when a rental unit comes vacant to upgrade it for the next resident are only going to be about $400 as you change residents and we know 50% of that rental revenues -- rental residents stay for one year. But what I'm saying is there is a possibility that the revenue from rental units will improve the ratios even beyond the 50% and the 30%, but only time will tell.

[Brian Hollenden:]

Thank you.

[Operator:]

And our next question comes from Craig Kucera of Wunderlich.

[Craig Kucera:]

Yeah hi good morning guys. Can you give us an update on traffic and absorption with your rental communities. With sales down considerably from last year does that makes you potentially more aggressive in putting rental units on properties to accelerate occupancy gains?

[Samuel A. Landy:]

Yes, but I want to be clear about this. Our traffic is higher than ever at this moment and for the month of July we filled more rental units than we ever did, 88 rental units. And for the month of July our sales also appeared to be coming back. A year ago as everybody tried to comply with all the new laws pertaining to financing it really stopped sales dead. And as the year’s gone by and everybody has become more and more familiar with how the regulations are going to work in practice we think we’re solving a lot of those problems. And if we’re able to solve those problems I think we can do both. So the market for the rental units is huge. We have communities with waiting lists, we have communities that were slowed down because of rain and they couldn’t get the homes set up fast enough, there is -- we have no communities that are receiving rental units that don’t say they can fill them. We have communities achieving a 100% occupancy and now for the first time in a long time we have some communities generating profitable sales. So all those are very positive and so the applications and we created a marketing division within UMH, and the applications are at record high and the marketing division is just getting started.

[Anna T. Chew:]

And I’d like to add a little something to that, this year we put in -- to-date we put in 300 rental units and overall occupancy of those rental units is already 95%. And this always felt [ph] to us that some are full occupancy. There’s always some downtime on moving somebody out and moving somebody else in but we believe that can even be a little stronger.

[Craig Kucera:]

Got it. So in light of the fact that you’re putting rental units into ground and they are being absorbed almost as quickly as you put them in, does that make you want to put more in the ground or you’re kind of sticking with where your prior guidance was?

[Samuel A. Landy:]

No, we’re going as fast as we can. 700, it’s a good number. It’s a good goal but there is a possibility we’ll put in more rental units. Any community who fills up their rental units will get more of them until they achieve a 100% occupancy. So that’s what we’re doing.

[Craig Kucera:]

Got it, no I think I mean that’s obviously a good problem to have when your demand is outstripping your supply. I know you’re bullish on the Marcellus and Utica, clearly energy crisis from [indiscernible] continued to be under pressure this quarter. Do you think this opens up any opportunity for some more potentially distressed sellers as you’re able to take advantage of having access to public capital?

[Samuel A. Landy:]

Do you mean distress sellers of manufactured home communities?

[Craig Kucera:]

Yes, yes because I mean you found a very large portfolio back in June that was attractive priced with a lot of upside. I guess my question is, are you seeing more of these types of opportunities out there?

[Samuel A. Landy:]

We’re very excited about the $68 million that we have under contract and we’re continuing to buy parts that are available but we have to tell you that the competition is fierce that there were at least nine groups that I know of that are also buying communities. So our game plan when we finish the two big tranches is to buy parts on a one-off basis to buy them from individual owners and that’s a long difficult process. But we think we can do it 25-50 million a year added acquisitions from that market. I don’t want to call them distressed, their problem is that we think nothing of spending $68 million and then putting 700 rentals and it costs [ph] $28 million. The mom and pop operators they are hurt by the inability to sell because of the government regulations and they frankly don’t have $100,000, $200,000, $300,000 to buy rental units. So they don't have the ability to move ahead with the property that we do. And as they get older and their pricings are pretty good right now, we hopefully can continue to buy plots and rent them.

[Craig Kucera:]

Okay great, thanks guys.

[Operator:]

And next we have a question from Joe Valdrini of Bank of America Merrill Lynch.

[Joseph Valdrini:]

Hello, everyone. Just a really quick question at the current pace of share dilution. How long do you envision that staying at the current rate?

[Eugene W. Landy:]

Well I don't call it share dilution at all. We've gone from 7,000 sites to 15,200 sites, we're going to 17,000 sites. Sam and the team are buying sites now at a very substantial discount from their replacement cost. Now unfortunately our share prices and where we would like it to be and we've been selling shares at a discount but we've been using the proceeds to buy assets at a discount and we've been creating a much strong better company, more efficient company and a more valuable company. We are discussing now changing our view and stopping the sale of equity and going towards perhaps preferred stock. But again as I started by conversation it is simply amazing what we're doing on at that site. I mean the ability to borrow 70% to 75% of these acquisitions at 4% or a 4.25% for 30 years is a big plus and allows us to grow without further sale of stock. So we are well aware that we don't want to sale more equity. And we are also aware we have very good bank lines and we are trying to -- we're discussing whether we can do a preferred issue. And when people look at that they want the earnings to be better. And we think the earnings are going to be better. And so we will be able to shift from any sale of equity hopefully to preferred stock. But it really depends on a continuation of the improvements that we see for the year-to-date, and where we think will go on at faster rate for the second half.

[Joseph Valdrini:]

Thank you. That's all.

[Operator:]

And next we have question from Michael Boulegeris of Boulegeris Investments.

[Michael Boulegeris:]

Good morning and thank you for taking my questions.

[Eugene W. Landy:]

Hi Mike.

[Michael Boulegeris:]

Sam, you -- would it be a bridge too far to suggest that you're saying site occupancy can by year end be over 84%, is that doable, I mean reasonable.

[Samuel A. Landy:]

84% is just another 100, 200 basis points. Well here’s what I know. The important -- I don’t know the exact percentage but I know that when we add 700 rental units we increase revenue $5.6 million. And to the extent we have move-outs right, because in some of the communities that we've purchased, the move outs are primarily obsolete homes. And so you're losing a house that paid rent at $400 and you're gaining a rental unit at $750. So the revenue end we're raising rents 4% and we're increasing rental units 700 units. And Anna is telling that need that we need increase 260 sites, we can increase 260 sites. So the answer to the question is, yeah we had [indiscernible] that you're asking for. No one says yes until I knew the answer [ph], but the answer is yes.

[Michael Boulegeris:]

Okay. Appreciate that. Thank you. Moving along your securities portfolio seemed relatively stable during the quarter. Is that because you're more investing in the preferred, does it -- in terms of the actual securities?

[Eugene W. Landy:]

That -- the securities portfolio relatively people maybe surprised with the recent decline but I tell you that we're very happy with it. The preferred has held up amazingly well. We have a $18 million in preferred and we have about $45 million to $48 million common. I've listened to every conference call and every individual we have, and every conference call indicates a strengthening real estate market. The fundamentals are getting better. The lead investors are very concerned about rising interest rates and there may be other reasons that they sell off. But you have a situation where share prices are going down and results are improving. And so that condition cannot continue at the same pace. The continuing rise in performance will be reflected in stock prices. So I am very optimistic about our REIT securities portfolio. And I have to remind everybody that we make $4,200,000 a year on dividends and there isn’t one company that the dividend is in danger at all. So we think that $4,200,000 is a good base. So I don't want to say we're pleased with the performance because, it has shifted off, we have the gains and now we have very, very small losses. But we think it's a fundamental part of our capital structure and that the -- I don't want to say long term prospects, the prospects for 2015, '16 are very good for the portfolio.

[Michael Boulegeris:]

Thank you Gene and in terms of maybe Sam could you provide us an update in terms of any plans that you're moving advancing now in terms of undeveloped acreage that you want to move forward and develop?

[Samuel A. Landy:]

Sure we're having hearings right at this moment. We're in the Saratoga, New York area seeking final approval on 60 lots. We're still working on the Coxsackie project 18 miles south of Albany, where we own 220 acres of vacant land, quarter mile from the Hudson River and half an hour from Hunter Mountain. And it's a beautiful slot property and it was -- we bought it, zoned, and zoned to allow 330 manufactured homes on a 110 acres. We've been fighting the battle for 10 years. So one of the things we know the value of purchasing the vacant sites we're purchasing today is substantial, because the approval process is such a nightmare. But even though it’s a nightmare we're working on our approvals in Wyoming, New Jersey where we're working on rebuilding Memphis Mobile City right now. We have a community Holiday outside Nashville, where we can put just 14 double wise [ph] but we can also add another 60 homes. So we're working on all of these expansions because expansions can be extremely profitable with the sale of the house almost paying for the construction of the lot, and then you can collect the lot rent forever after. So where we think one of the great unknowns to other people about what we're doing is the value of the vacant sites. If you been through the approval process and you know the cost of the engineering, the cost of the legal and the uncertainty. And then you look at the fact that we can buy a 70% occupied community and know exactly what we paid for vacant sites and they are there nobody can take them away from you. That has incredible value. But we like the expansions also because after you go through the work, they're in locations where you expect to add -- earn a sales profit of the lot rent.

[Michael Boulegeris:]

Well it seems like you're poised for a qualitative growth and it's finally started to really get traction. Finally, the regulatory climate, I don't know if that 682 would affect UMH but as it moves I guess out of the Senate But is there any comments stepping back that maybe you'll see some, are you hopeful that maybe you'll see some modification to Dodd Frank that would be helpful?

[Samuel A. Landy:]

We're very hopeful of that but at the same time, we already, we were audited by the State on -- our safe act Dodd Frank compliance and we did firms. As other firms like 21st become more familiar with compliance, people are easing up the standards a little bit. And that helps tremendously. And so yes we still want the law changed and MHI the Manufactured Housing Institute is working on it at this moment. But just in the 60 days we've had discussions about the meaning of the law and people have agreed that there was more opportunity than we were taking advantage of back in January. So we are -- the number of applications that come in that are being approved is going up now.

[Eugene W. Landy:]

But I have to add that that, the situation, I don't know how we ever -- the country ever got into this for the wealthy people, the jumbo mortgages which were 4% of the market and now 20% of the market, but we are doing five times in the country the $1 million homes and on the affordable end of it, they have really stopped the lower income people from buying homes and frankly I think it's going to prove to be bad politics, because if you deny a person who would like to buy a home and the home goes up 8% year and ultimately goes up 50% they are not going to thank people for the fact that we were forced to turn them down, when Sam and I thought that they had sufficient income and the regulations prohibited us from making the loan.

[Michael Boulegeris:]

And just if I could ask one last question and maybe I think Anna or Gene mentioned that the rental income growth, $64 million to $75 million to $85 million. So year-over-year you are looking at 17%, 13%. Certainly maybe Eugene as the Chairman as UMH really starts to consolidate these new acquisitions and growth firms up, that bodes well for the security of the dividend, I would venture to guess.

[Eugene W. Landy:]

We don't like to say that the dividend is secure. We have a gap of $5 million and we think that between sales and occupancy and rent increases and all the prospects you've heard today in this call, that's not a very big gap and we will close that gap and so we see no reason to cut the dividend at the present time and then find that earnings are going ahead to the extent that the dividend will be covered. But like all future representations it's up to the Board of Directors to clear the dividends and we are dependent on the fact that the rosy prospectus we’ve outlined today actually turned out to be the way we think they are. On the top line the numbers are fairly well set. We did $64 million in 2014, we will do $72 million in 2015 and with the acquisition and the rentals going in we will do $85 million in 2016 and if we keep the 50% margin and we are very optimistic that this is going to be a much more valuable company in 2016 and 2017 and we are very pleased with top line progress and now we have to make the bottom line progress fall into line with our gross revenue increases.

[Michael Boulegeris:]

Fair enough. Thank you very much.

[Samuel A. Landy:]

Thank you.

[Operator:]

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

[Samuel A. Landy:]

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 question. We look forward to reporting back to you after our third quarter.

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation. The teleconference replay will be available in approximately one hour. To access this replay please dial U.S. toll free 1877-344-7529 or international 1412-317-0088. The conference ID number is 10066873. Thank you and please disconnect your lines.