Flagship Communities Real Estate Investment Trust Announces First Quarter 2024 Results

Not for distribution to U.S. newswire services or dissemination in the United States.

TORONTO, May 07, 2024 (GLOBE NEWSWIRE) -- Flagship Communities Real Estate Investment Trust (“Flagship” or the “REIT”) (TSX: MHC.U; MHC.UN) today released its first quarter 2024 results. The financial results of the REIT are presented below in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”), except where otherwise noted. Results are shown in U.S. dollars unless otherwise noted.

First Quarter 2024 Results:

• Rental revenue for the three months ended March 31, 2024 was $19.9 million, an increase of 18.9% compared to $16.8 million for the three months ended March 31, 2023
• Same Community Revenue¹ for the three months ended March 31, 2024 was $18.6 million, up 11.2% compared to $16.7 million for the three months ended March 31, 2023
• Net income and comprehensive income for the three months ended March 31, 2024 was $11.1 million compared to $16.2 million for the three months ended March 31, 2023
• Net Operating Income (“NOI”) for the three months ended March 31, 2024 was $13.3 million, up 20.0% compared to $11.1 million for the three months ended March 31, 2023
• Same Community NOI¹ for the three months ended March 31, 2024 was $12.6 million, an increase of 13.4%, compared to $11.1 million for the three months ended March 31, 2023
• NOI Margin¹ for the three months ended March 31, 2024 was 67.0% compared to 66.3% for the three months ended March 31, 2023
• Same Community NOI Margin¹ for the three months ended March 31, 2024 was 67.8%, compared to 66.4% for the three months ended March 31, 2023
• Funds from operations (“FFO”) adjusted per unit (diluted)² for the three months ended March 31, 2024 was $0.325 compared to $0.298 for the three months ended March 31, 2023 which was an increase of $0.027 per unit, or 9.1%
• Adjusted funds from operations (“AFFO”) adjusted per unit (diluted)² for the three months ended March 31, 2024 was $0.285 compared to $0.260 for the three months ended March 31, 2023 which was an increase of $0.025 per unit, or 9.6%
• Rent Collections¹ for the three months ended March 31, 2024 was 99.7%, which was the same for the three months ended March 31, 2023
• Flagship refinanced four mortgages payable at a lower fixed interest rate with a longer term. The cash proceeds were used to pay off existing debt; Flagship now has no substantial debt maturities until 2030
• Subsequent to quarter-end, Flagship announced the pending closing of the largest acquisition in the REIT’s history for an aggregate purchase price of approximately US$93.0 million, whereby Flagship entered into an agreement to acquire seven manufactured housing communities (“MHCs”), which will expand its existing footprint in Tennessee and establish a new presence in West Virginia, representing the eighth contiguous U.S. state where the REIT operates (the “Expansion Acquisitions”)

• Also subsequent to quarter-end, Flagship raised gross proceeds of $60 million through the issuance of 3,910,000 Units at a price of US$15.35 per Unit, the net proceeds of which, were used to partially fund the Expansion Acquisitions
• Published fourth annual Environmental, Social and Governance (“ESG”) report, articulating Flagship’s sustainability strategy and initiatives to help provide affordable housing and quality residential living experiences for its residents

As at March 31, 2024

• Debt to Gross Book Value¹ as at March 31, 2024 was 40.5% compared to 40.3% as at December 31, 2023
• Total portfolio occupancy was 83.9% as at March 31, 2024, a 0.5% increase from March 31, 2023
• Same Community¹ occupancy was 84.7% as at March 31, 2024, a 1.1% increase from March 31, 2023
  

¹See “Other Real Estate Industry Metrics”
²See “Non-IFRS Financial Measures”

“We have started 2024 on a positive note, having already achieved a number of significant milestones,” said Kurt Keeney, President and CEO. “A high priority to begin the year was to refinance our near-term debt and extend our maturities. Our ability to complete these refinancings helped pave the way for agreeing to the largest acquisition in our history. Our pending acquisition of seven MHCs is a significant opportunity to expand our existing presence in Tennessee and enter West Virginia, which will represent our eighth contiguous U.S. state.”

Financial Summary

($000s except per share amounts)
	For the three months ended Mar. 31, 2024		For the three months ended Mar. 31, 2023		Variance
Rental revenue and related income	19,920		16,758		3,162
Same Community Revenue1	18,600		16,732		1,868
Acquisitions Revenue1	1,320		26		1,294
Net income and comprehensive income	11,124		16,215		(5,091	)
NOI, total portfolio	13,337		11,118		2,219
Same Community NOI1	12,608		11,116		1,492
Acquisitions NOI1	729		2		728
NOI Margin1, total portfolio	67.0%		66.3%		0.7%
Same Community NOI Margin1	67.8%		66.4%		1.3%
Acquisitions NOI Margin1	55.3%		5.9%		49.3%
FFO2	4,354		5,903		(1,549	)
FFO per unit2 (diluted)	0.206		0.298		(0.092	)
FFO adjusted2	6,877		5,903		974
FFO adjusted per unit2 (diluted)	0.325		0.298		0.027
AFFO2	3,497		5,153		(1,656	)
AFFO per unit2	0.165		0.260		(0.095	)
AFFO Payout Ratio2	89.0%		53.4%		35.5%
AFFO adjusted2	6,020		5,153		867
AFFO adjusted per unit2	0.285		0.260		0.025
AFFO adjusted Payout Ratio2	51.7%		53.4%		(1.7%	)
Weighted average units (basic)	15,492,056		14,258,833		1,233,223
Weighted average units (Diluted)	21,147,279		19,802,146		1,345,133
1. See “Other Real Estate Industry Metrics” 2. See “Non-IFRS Financial Measures”

Financial Overview

Rental revenue and related income in the first quarter of 2024 was $19.9 million, up 18.9% compared to the same period last year. This increase was primarily driven by lot rent increases and occupancy increases across the portfolio as well as Acquisitions.

Same Community Revenues for the first quarter of 2024 were $18.6 million, approximately $1.9 million higher than the same period last year. This increase was a result of increasing monthly lot rent year over year, growth in Same Community Occupancy, and increased utility revenues.

Net income and comprehensive income for the three months ended March 31, 2024 was $5.1 million lass than the same period last year, as a result of the fair value adjustments on investment properties and Class B Units of Flagship Operating, LLC (“Class B Units”) being $3.5 million less than in the same period in 2023.

NOI and NOI Margin for the first quarter of 2024 were $13.3 million and 67.0%, respectively, compared to $11.1 million and 66.3% during the first quarter of 2023.

Same Community NOI Margin for the first quarter ended March 31, 2024 was 67.8%, which was a 1.3% increase over the same period last year, demonstrating Flagship’s ability to develop operational efficiencies the longer communities are owned by the REIT. Same Community Occupancy of 84.7% as at March 31, 2024, increased by 1.1% compared to March 31, 2023.

AFFO for the first quarter of 2024 was $3.5 million, a decrease of 32.1% from the first quarter of 2023, due to a mortgages payable settlement expense of $2.5 million, which is comprised of prepayment penalties, defeasance, amortization of financing costs, and other costs associated with the refinance and payoff of certain mortgages payable prior to maturity. AFFO per unit for the three months ended March 31, 2024 was $0.165, a decrease of $0.095 from the same period last year for the same reason.

AFFO adjusted, which does not take into account the infrequent mortgages payable settlement expense the REIT incurred during the quarter, was $6.0 million for the first quarter of 2024, a 16.8% increase compared to the same period last year. AFFO adjusted per unit for the first quarter of 2024 was $0.285, an 9.6% increase compared to the same period in 2023.

Rent Collections for the first quarter of 2024 remained stable at 99.7%, compared to the same period last year.

During the first quarter 2024, Flagship refinanced four mortgages payable at a lower fixed interest rate with a longer term. The REIT used the cash proceeds to pay off existing debt. For more information, please see the “Debt Financing” section in the REIT’s Management’s Discussion & Analysis for the quarter-ended March 31, 2024.

As at March 31, 2024 the REIT’s Weighted Average Mortgage Term (see “Other Real Estate Industry Metrics” for more information) to maturity was 10.8 years. The REIT’s Weighted Average Mortgage Interest Rate (see “Other Real Estate Industry Metrics” for more information) was 4.04%. Flagship has no substantial debt maturities until 2030.

Flagship’s total cash and cash equivalents were approximately $17.9 million with an additional $10 million available on the REIT’s line of credit.

Operations Overview

Subsequent to quarter-end, Flagship announced the Expansion Acquisitions, being the largest acquisition in the REIT’s history for an aggregate purchase price of approximately US$93.0 million, whereby Flagship entered into an agreement to acquire seven MHCs, which expands its existing footprint in Tennessee and establishes a new presence in West Virginia, representing the eighth contiguous U.S. state where the REIT operates.

These Expansion Acquisitions represent an opportunity to become a market leading owner in these markets by strategically expanding the REITs footprint into adjacent and new markets, both of which enable the REIT to maximize existing synergies and leverage economies of scale.

The Expansion Acquisitions will strengthen the REIT’s presence in Tennessee, where the REIT first began operations in 2019, by entering Nashville, one of the fastest growing markets in the U.S. The Expansion Acquisitions will also form a foothold in a new market, West Virginia, by establishing a presence in three distinct markets within the state.

Also subsequent to quarter-end, Flagship raised gross proceeds of approximately US$60 million through the issuance of 3,910,000 Units at a price of US$15.35 per Unit. The net proceeds were used to partially fund the Expansion Acquisitions.

Flagship also recently published its fourth ESG Report (the “Report”). The Report articulates Flagship’s sustainability strategy and initiatives to help provide affordable housing and quality residential living experiences for its residents. The Report also outlines Flagship’s commitments to its unitholders, employees, and communities through initiatives on renewable energy, education, household amenities and includes details on the REIT’s diversity programs and governance structure. To learn more visit Flagship’s website at:
https://flagshipcommunities.com/wp-content/uploads/2023_esg_report_fla ....

As at March 31, 2024, the REIT owned a 100% interest in a portfolio of 73 MHCs with 13,310 lots as well as two recreational vehicle (“RV”) resort communities with 470 sites, The table below provides a summary of the REIT’s portfolio as of March 31, 2024, compared to December 31, 2023:

		As of March 31, 2024	As of December 31, 2023
Total communities	(#)	75	75
Total lots	(#)	13,780	12,743
Weighted Average Lot Rent1	(US$)	447	418
Occupancy	(%)	83.9	83.4
Debt to Gross Book Value1	(%)	40.5	40.3
Weighted Average Mortgage Interest Rate1	(%)	4.04	4.08
Weighted Average Mortgage Term1	(Years)	10.8	10.3
1. See “Other Real Estate Industry Metrics”

Outlook

Flagship maintains a positive outlook for the MHC industry and believes it offers significant upside potential to investors. This is primarily due to the MHC industry’s consistent track record of historical outperformance relative to other real estate classes and the lack of supply of new manufactured housing communities given the various layers of regulatory restrictions, competing land uses and scarcity of land zoned, which has created high barriers to entry for new market entrants.  

Other macro and MHC industry-specific characteristics and trends that support Flagship’s positive outlook include:

• Increasing household formations;
• Lower housing and rental affordability;
• Declining single-family residential homeownership rates;
  

Non-IFRS Financial Measures
In this news release, the REIT uses certain financial measures that are not defined under IFRS including certain non-IFRS ratios, to measure, compare and explain the operating results, financial performance and cash flows of the REIT. These measures are commonly used by entities in the real estate industry as useful metrics for measuring performance. However, they do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other publicly traded entities. These measures should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS.

Funds from Operations and Adjusted Funds from Operations
Funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) are calculated in accordance with the definition provided by the Real Property Association of Canada (“REALPAC”).

FFO is defined as IFRS consolidated net income (loss) adjusted for items such as distributions on redeemable or exchangeable units (including distributions on the Class B Units), unrealized fair value adjustments to Class B Units, unrealized fair value adjustments to investment properties, unrealized fair value adjustments to unit based compensation, loss on extinguishment of acquired mortgages payable, gain on disposition of investment properties, and depreciation. FFO should not be construed as an alternative to consolidated net income (loss) or consolidated cash flows provided by (used in) operating activities determined in accordance with IFRS. The REIT’s method of calculating FFO is substantially in accordance with REALPAC’s recommendations but may differ from other issuers’ methods and, accordingly, may not be comparable to FFO reported by other issuers. Refer to section “Reconciliation of FFO, FFO per unit, FFO adjusted, FFO adjusted per unit, AFFO, AFFO per unit, AFFO adjusted and AFFO adjusted per unit” for a reconciliation of FFO to FFO adjusted to AFFO to AFFO adjusted to consolidated net income (loss).

“FFO per unit (diluted)” is defined as FFO for the applicable period divided by the diluted weighted average unit count (including Class B Units, vested Restricted Units (“RUs”) and vested Deferred Trust Units (“DTUs”)) during the period.

“FFO adjusted” is defined as FFO adjusted for unique, infrequent transactions with the goal of presenting FFO in a normalized manner that is substantially in accordance with REALPAC’s recommendations. For the three months ended March 31, 2024 adjustments include mortgages payable settlement expense, which is comprised of prepayment penalties, defeasance, amortization of financing costs, and other costs associated with the refinance and payoff of certain mortgages payable prior to maturity.

“FFO adjusted per unit (diluted)” is defined as FFO adjusted for the applicable period divided by the diluted weighted average unit count (including Class B Units, vested RUs and vested DTUs) during the period.

AFFO is defined as FFO adjusted for items such as maintenance capital expenditures, and certain non-cash items such as amortization of intangible assets, and premiums and discounts on debt and investments. AFFO should not be construed as an alternative to consolidated net income (loss) or consolidated cash flows provided by (used in) operating activities determined in accordance with IFRS. The REIT’s method of calculating AFFO is substantially in accordance with REALPAC’s recommendations. The REIT uses a capital expenditure reserve of $75 per lot per year and $1,100 per rental home per year, for the year ending December 31, 2024, ($60 per lot per year and $1,000 per rental home per year, for the year ended December 31, 2023) in the AFFO calculation. This reserve is based on management’s best estimate of the cost that the REIT may incur, related to maintaining the investment properties. This may differ from other issuers’ methods and, accordingly, may not be comparable to AFFO reported by other issuers. Refer to section “Reconciliation of FFO, FFO per unit, FFO adjusted, FFO adjusted per unit, AFFO, AFFO per unit, AFFO adjusted and AFFO adjusted per unit” for a reconciliation of AFFO to AFFO adjusted to consolidated net income (loss).

“AFFO Payout Ratio” is defined as total cash distributions of the REIT (including distributions on Class B Units) divided by AFFO.

“AFFO per unit (diluted)” is defined as AFFO for the applicable period divided by the diluted weighted average unit count (including Class B Units, vested RUs and vested DTUs) during the period.

“AFFO adjusted” is defined as AFFO adjusted for unique, infrequent transactions with the goal of presenting AFFO in a normalized manner that is substantially in accordance with REALPAC’s recommendations. For the three months ended March 31, 2024 adjustments include mortgages payable settlement expense, which is comprised of prepayment penalties, defeasance, amortization of financing costs, and other costs associated with the refinance and payoff of certain mortgages payable prior to maturity.

“AFFO adjusted Payout Ratio” is defined as total cash distributions of the REIT (including distributions on Class B Units) divided by AFFO adjusted.

“AFFO adjusted per unit (diluted)” is defined as AFFO adjusted for the applicable period divided by the diluted weighted average unit count (including Class B Units, vested RUs and vested DTUs) during the period.
The REIT believes these non-IFRS financial measures and ratios provide useful supplemental information to both management and investors in measuring the operating performance, financial performance and financial condition of the REIT. The REIT also uses AFFO and AFFO adjusted in assessing its distribution paying capacity.

Other Real Estate Industry Metrics

Additionally, this news release contains several other real estate industry financial metrics:

• “Acquisitions” means the REIT’s properties, excluding Same Communities (as defined below) (i.e. Acquisitions Revenue, as well as Acquisitions NOI, and Acquisitions NOI Margin (as defined below)), and such measure is used by management to evaluate period-over-period performance of such investment properties throughout both respective periods. These results reflect the impact of acquisitions of investment properties.
• “Debt to Gross Book Value” is calculated by dividing indebtedness, which consists of the total principal amounts outstanding under mortgages payable and credit facilities, by Gross Book Value (as defined below). Refer to section “Calculation of Other Real Estate Industry Metrics – Debt to Gross Book Value” section in the REIT’s Management’s Discussion & Analysis for the quarter-ended March 31, 2024.
• “Gross Book Value” means, at any time, the greater of: (a) the value of the assets of the REIT and its consolidated subsidiaries, as shown on its then most recent consolidated statement of financial position prepared in accordance with IFRS, less the amount of any receivable reflecting interest rate subsidies on any debt assumed by the REIT; and (b) the historical cost of the investment properties, plus (i) the carrying value of cash and cash equivalents, (ii) the carrying value of mortgages receivable; and (iii) the historical cost of other assets and investments used in operations.
• “NOI Margin” is defined as NOI divided by total revenue. Refer to section “Calculation of Other Real Estate Industry Metrics – NOI and NOI Margin”.
• “Rent Collections” is defined as the total cash collected in a period divided by total revenue charged in that same period.
• “Same Community” means all properties which have been owned and operated continuously since January 1, 2023 by the REIT and such measures (i.e., Same Community Revenue, as well as Same Community NOI, Same Community NOI Margin, and Same Community Occupancy) are used by management to evaluate period-over-period performance.
• “Weighted Average Lot Rent” means the lot rent for each individual community multiplied by the total lots in that community summed for all communities divided by the total number of lots for all communities.
• “Weighted Average Mortgage Interest Rate” is calculated by multiplying each mortgage's interest rate by the mortgage balance and dividing the sum by the total mortgage balance.
• “Weighted Average Mortgage Term” is calculated by multiplying each mortgage’s remaining term by the mortgage balance and dividing by the sum by the total mortgage balance.
  

Reconciliation of Non-IFRS Financial Measures

FFO, FFO Per unit, FFO adjusted, FFO adjusted per unit, AFFO, AFFO per unit, AFFO adjusted and AFFO adjusted per unit

($000s, except per unit amounts)	For the three months ended March 31, 2024		For the three months ended March 31, 2023
Net income and comprehensive income	11,124		16,215
Adjustments to arrive at FFO
Depreciation	111		88
Fair value adjustments - Class B units	7,090		3,950
Distributions on Class B units	824		768
Fair value adjustment – investment properties	(14,829	)	(15,163	)
Fair value adjustment – unit based compensation	34		45
Funds from Operations (“FFO”)	4,354		5,903
FFO per Unit (diluted)	0.206		0.298
Adjustments to arrive at FFO adjusted
Mortgages payable settlement expense	2,523		-
FFO adjusted	6,877		5,903
FFO adjusted per unit (diluted)	0.325		0.298
Adjustments to arrive at AFFO
Accretion of mark-to-market adjustments on mortgage payable	(257	)	(257	)
Capital Expenditure Reserves	(600	)	(493	)
Adjusted Funds from Operations (“AFFO”)	3,497		5,153
AFFO per Unit (diluted)	0.165		0.260
Adjustments to arrive at AFFO adjusted
Mortgages payable settlement expense	2,523		-
AFFO adjusted	6,020		5,153
AFFO adjusted per unit (diluted)	0.285		0.260

Calculation of Other Real Estate Industry Metrics

NOI and NOI Margin

($000s)	For the three months ended March 31, 2023		For the three months ended March 31, 2023
Rental revenue and related income	19,920		16,758
Property operating expenses	6,583		5,640
NOI	13,337		11,118
NOI Margin	67.0%		66.3%

Forward-Looking Statements
This news release contains statements that include forward-looking information (within the meaning of applicable Canadian securities laws). Forward-looking statements are identified by words such as “believe”, “anticipate”, “project”, “expect”, “intend”, “plan”, “will”, “may”, “can”, “could”, “would”, “must”, “estimate”, “target”, “objective”, and other similar expressions, or negative versions thereof, and include statements herein concerning: the terms and expected closing of the Expansion Acquisitions, as well as the expected impacts thereof; and the statements in the section “Outlook”. These statements are based on the REIT’s expectations, estimates, forecasts, and projections, as well as assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies that could cause actual results to differ materially from those that are disclosed in such forward-looking statements. While considered reasonable by management of the REIT as at the date of this news release, any of these expectations, estimates, forecasts, projections, or assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those expectations, estimates, forecasts, projections, or assumptions could be incorrect. Material factors and assumptions used by management of the REIT to develop the forward-looking information in this news release include, but are not limited to, the REIT’s current expectations about: vacancy and rental growth rates in MHCs and the continued receipt of rental payments in line with historical collections; demographic trends in areas where the MHCs are located; further MHC acquisitions by the REIT; the applicability of any government regulation concerning MHCs and other residential accommodations; the availability of debt financing and future interest rates, which continue to be volatile and have trended upward since the REIT’s formation in 2020; increasing expenditures and fees, in connection with the ownership of MHCs, driven by inflation; tax laws; and that the conditions to closing of the Expansion Acquisitions will be met or waived in a timely manner and that both of the Expansion Acquisitions will be completed on the current agreed upon terms. When relying on forward-looking statements to make decisions, the REIT cautions readers not to place undue reliance on these statements, as they are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed or referenced under the heading “Risks and Uncertainties” in the REIT’s most recent annual or interim Management’s Discussion & Analysis. There can be no assurance that forward-looking statements will prove to be accurate as actual outcomes and results may differ materially from those expressed in these forward-looking statements. Further, certain forward-looking statements included in this news release may be considered as “financial outlook” for purposes of applicable Canadian securities laws, and as such, the financial outlook may not be appropriate for purposes other than to understand management’s current expectations and plans relating to the future, as disclosed in this news release. Forward-looking statements are made as of the date of this news release and, except as expressly required by applicable law, the REIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

First Quarter 2024 Results Conference Call and Webcast

DATE:	Wednesday, May 8, 2024
TIME:	8:30 a.m. ET
JOIN BY PHONE:	https://register.vevent.com/register/BI181bb41c26f84f9b9e3ef6c08b769ab ...
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About Flagship Communities Real Estate Investment Trust

Flagship Communities Real Estate Investment Trust is a leading operator of affordable residential Manufactured Housing Communities primarily serving working families seeking affordable home ownership. The REIT owns and operates exceptional residential living experiences and investment opportunities in family-oriented communities in Kentucky, Indiana, Ohio, Tennessee, Arkansas, Missouri, and Illinois. To learn more about Flagship, visit www.flagshipcommunities.com.

For further information, please contact:

Eddie Carlisle, Chief Financial Officer
Flagship Communities Real Estate Investment Trust
Tel: [phone]