FLAGSHIP COMMUNITIES REAL ESTATE INVESTMENT TRUST ANNOUNCES THIRD QUARTER 2023 RESULTS

/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES./

TORONTO, Nov. 14, 2023 /CNW/ - Flagship Communities Real Estate Investment Trust ("Flagship" or the "REIT") (TSX: MHC.U) (TSX: MHC.UN) today released its third quarter 2023 results. The financial results of the REIT are presented below in accordance with International Financial Reporting Standards ("IFRS"), except where otherwise noted. Results are shown in U.S. dollars unless otherwise noted.

Third Quarter 2023 Results:

• Rental revenue for the three months ended September 30, 2023 was $18.2 million, an increase of 20.7% compared to $15.0 million for the three months ended September 30, 2022
• Same Community Revenue¹ for the three months ended September 30, 2023 was $15.7 million, up 10.3% compared to $14.2 million for the three months ended September 30, 2022
• Net income and comprehensive income for the three months ended September 30, 2023 was $29.0 million compared to $14.9 million for the three months ended September 30, 2022
• Funds from operations ("FFO") per unit (diluted)² for the three months ended September 30, 2023 was $0.297 compared to $0.272 for the three months ended September 30, 2022 which was an increase of $0.025 per Unit, or 9.2%
• Adjusted funds from operations ("AFFO") per unit (diluted)² for the three months ended September 30, 2023 was $0.260, an increase of 10.6% compared to $0.235 for the three months ended September 30, 2022
• Net operating income ("NOI") for the three months ended September 30, 2023 was $11.8 million, up 20.1% compared to $9.8 million for the three months ended September 30, 2022
• Same Community NOI¹ for the three months ended September 30, 2023 was $10.4 million, an increase of 10.9%, compared to $9.3 million for the three months ended September 30, 2022
• NOI Margin¹ for the three months ended September 30, 2023 was 65.2% compared to 65.5% for the three months ended September 30, 2022
• Same Community NOI Margin¹ for the three months ended September 30, 2023 was 66.0% compared to 65.7% for the three months ended September 30, 2022
• Debt to Gross Book Value¹ as at September 30, 2023 was 39.9% compared to 42.9% as at December 31, 2022
• Total portfolio occupancy was 83.5% as at September 30, 2023, an increase of 0.4% compared to December 31, 2022
• Same Community¹ Occupancy increased to 85.0% as at September 30, 2023, an increase of 1.4% compared to 83.6% as at September 30, 2022, demonstrating the REIT's ability to drive occupancy growth utilizing the home ownership model
• Rent Collections¹ for the three months ended September 30, 2023 was 99.3%, up from 98.2% for the three months ended September 30, 2022
• In August 2023, Flagship acquired a manufactured housing community ("MHC") in Evansville, Indiana for $23 million, the REIT's 11^th community in the Evansville market
• In September 2023, Flagship acquired a Resort Style Community at Indian Lake in Lakeview, Ohio for approximately $3 million, adding another resort community to the REIT's portfolio

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¹ See "Other Real Estate Industry Metrics" 

² See "Non-IFRS Financial Measures"

"The MHC industry has a track record of outperformance relative to all other real estate asset classes and that characteristic was especially prevalent in the third quarter of 2023," said Kurt Keeney, President and CEO. "In addition to increases in rental revenue and NOI, our Same Community metrics saw notable improvements, which are important to measure the strength and stability of our business. We also made two significant additions to our portfolio during the quarter."

Financial Summary

($000s except per share amounts)
	For the three months ended Sept. 30, 2023	For the three months ended Sept. 30, 2022	Variance	For the nine months ended Sept. 30, 2023	For the nine months ended Sept. 30, 2022	Variance
Rental revenue and related income	18,154	15,042	3,112	52,291	43,098	9,193
Same Community Revenue^1	15,689	14,222	1,467	45,827	41,670	4,157
Acquisitions Revenue^1	2,465	820	1,645	6,464	1,428	5,037
Net income and comprehensive income	28,980	14,910	14,070	66,586	43,366	23,220
NOI, total portfolio	11,830	9,848	1,982	34,478	28,566	5,912
Same Community NOI^1	10,360	9,345	1,015	30,301	27,793	2,508
Acquisitions NOI^1	1,470	503	967	4,177	773	3,405
NOI Margin^1, total portfolio	65.2 %	65.5 %	(0.3) %	65.9 %	66.3 %	(0.4) %
Same Community NOI Margin^1	66.0 %	65.7 %	0.3 %	66.1 %	66.7 %	(0.6) %
Acquisitions NOI Margin^1	59.6 %	61.3 %	(1.7) %	64.6 %	54.1 %	10.5 %
FFO^2	6,267	5,337	930	18,403	16,336	2,067
FFO Per Unit^2	0.297	0.272	0.025	0.891	0.832	0.059
AFFO^2	5,489	4,616	873	16,111	14,187	1,923
AFFO per Unit^2	0.260	0.235	0.025	0.780	0.723	0.057
AFFO Payout Ratio^2	53.9 %	56.8 %	(2.9) %	53.7 %	55.5 %	(1.8) %
Weighted average units (Diluted)	21,132,226	19,637,962	1,494,264	20,656,025	19,625,617	1,030,408
1.  See "Other Real Estate Industry Metrics" 2.  See "Non-IFRS Financial Measures"

Financial Overview

Rental revenue and related income in the third quarter of 2023 was $18.2 million, up 20.7% compared to the same period last year primarily due to lot rent increases and occupancy increases across the portfolio as well as Acquisitions.

Same Community Revenue of $15.7 million for the third quarter ended September 30, 2023, increased relative to the third quarter ended September 30, 2022 by approximately $1.5 million or 10.3%. This increase was driven by higher 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 September 30, 2023 was $29.0 million, approximately $14.5 million more than the prior period, as a result of the fair value gain on investment properties and Class B Units for the three months ended September 30, 2023 being more than in the same period in 2022.

NOI for the third quarter of 2023 was $11.8 million, compared to $9.8 million, an increase of 20.1% compared to the third quarter of 2022. The increase in NOI was primarily driven by the REIT's lot rent increases implemented during the year, occupancy growth, increases in utility revenues, and economies of scale from operating in existing markets.

NOI Margins and Same Community NOI Margins were 65.2% and 66.0% in the third quarter of 2023, a decrease of 0.3% and an increase of 0.3% respectively, compared to the three months ended September 30, 2022. 

Same Community Occupancy of 85.0% increased by 1.4% as of September 30, 2023, compared to the same period last year. The consistent and growing occupancy rate reflects Flagship's commitment to resident satisfaction and ensuring its communities are in desirable locations.

AFFO for the third quarter of 2023 was $5.5 million, an increase of 18.9% from the third quarter of 2022. AFFO per Unit for the third quarter of 2023 was $0.260 per unit, an increase of 10.6% from $0.235 from the same period last year.

Rent Collections for the third quarter of 2023 were 99.3%, an increase from 98.2% from the three months ended September 30, 2022.

As of September 30, 2023, Flagship's total cash and cash equivalents were $5.9 million with no material near-term debt obligations. The REIT's Weighted Average Mortgage Term (see "Other Real Estate Industry Metrics" for more information) to maturity was 10.3 years.

Operations Overview

During the third quarter 2023, Flagship acquired an MHC in Evansville, Indiana for approximately $23 million funded with cash on the balance sheet and additional leverage. The Evansville, Indiana community comprises 309 lots of which, approximately 95% are occupied. This acquisition is the REIT's 11th purchase in Evansville, which is a strategic component of Flagship's portfolio, having operated in that market since 2015. This acquisition provides Flagship with the opportunity for stable and continuing growth in the Evansville market, while adding incremental occupancy growth at all of its Evansville communities.

Also, during the third quarter 2023, Flagship acquired a Resort Style Community at Indian Lake in Lakeview, Ohio for approximately US$3 million. This acquisition adds another resort community to Flagship's Ohio portfolio and enables the REIT to leverage its reputation, marketing and booking programs to the benefit of this new resort community.

As at September 30, 2023, the REIT owned a 100% interest in a portfolio of 72 MHCs with 13,246 lots as well as two RV resort communities with 470 sites. The table below provides a summary of the REIT's portfolio as of September 30, 2023, compared to December 31, 2022:

		As at September 30, 2023	As at December 31, 2022
Total communities	(#)	74	69
Total lots	(#)	13,716	12,601
Weighted Average Lot Rent^1	(US$)	415	388
Total portfolio occupancy	( %)	83.5	83.1
Same Community Occupancy	( %)	85.0	83.6^2
Debt to Gross Book Value^1	( %)	39.9	42.9
Weighted Average Mortgage Interest Rate^1	( %)	4.09	3.78
Weighted Average Mortgage Term^1	(Years)	10.3	11.7
1.  See "Other Real Estate Industry Metrics" 2.  As of September 30, 2022

Outlook

Flagship believes the REIT is well positioned amidst the current inflationary economic environment, higher rental rates and rising mortgage rates that are making traditional, stick-built homes more difficult to obtain in the United States.

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, AFFO and AFFO per Unit" for a reconciliation of FFO to AFFO 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 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 $60 per lot per year and $1,000 per rental home per year 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, AFFO and AFFO per Unit" for a reconciliation of AFFO 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. 

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 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) and such measures (i.e. Acquisitions Revenue, as well as Acquisitions net operating income ("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".
• "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.
• "Liquidity" is defined as (a) cash and cash equivalents, plus (b) borrowing capacity available under any existing credit facilities.
• "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, 2022, by the REIT and such measures (i.e., Same Community Revenue as well as Same Community NOI or 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 FFO, FFO per Unit, AFFO and AFFO per Unit

($000s, except per unit amounts)	For the three months ended Sept. 30, 2023	For the three months ended Sept. 30, 2022	For the nine months ended Sept. 30, 2023	For the nine months ended Sept. 30, 2022
Net income and comprehensive income	28,980	14,910	66,586	43,366
Adjustments to arrive at FFO
Depreciation	103	76	288	209
Fair value adjustments - Class B Units	(6,985)	(1,915)	(7,226)	(23,552)
Distributions on Class B Units	785	732	2,337	2,194
Fair value adjustment – investment properties	(16,541)	(8,458)	(43,495)	(5,796)
Fair value adjustment – unit based compensation	(75)	(8)	(87)	(85)
Funds from Operations ("FFO")	6,267	5,337	18,403	16,336
FFO per Unit (diluted)	0.297	0.272	0.891	0.832
Adjustments to arrive at AFFO
Accretion of mark-to-market adjustments on mortgage payable	(257)	(257)	(772)	(772)
Capital Expenditure Reserves	(521)	(464)	(1,520)	(1,377)
AFFO	5,489	4,616	16,111	14,187
AFFO per Unit (diluted)	0.260	0.235	0.780	0.723

Calculation of Other Real Estate Industry Metrics

NOI and NOI Margin

($000s)	For the three months ended Sept. 30, 2023	For the three months ended Sept. 30, 2022	For the nine months ended Sept. 30, 2023	For the nine months ended Sept. 30, 2022
Rental revenue and related income	18,154	15,042	52,291	43,098
Property operating expenses	6,324	5,194	17,813	14,532
NOI	11,830	9,848	34,478	28,566
NOI Margin	65.2 %	65.5 %	65.9 %	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 REIT's investment strategy and creation of long-term value; the REIT's intention to continue to expand, including on a clustered basis and newly-entered geographies, and to convert rental homes to tenant owned homes as opportunities allow; expected sources of funding for future acquisitions; macro characteristics and trends in the United States real estate and housing industry, as well as the manufactured housing community ("MHC") industry specifically; the continued ability of the REIT's MHCs to be stable or strengthen in the foreseeable future and over the longer term; and the REIT's target indebtedness as a percentage of Gross Book Value. 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; and tax laws. 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 under the heading "Risks and Uncertainties" herein or in the Annual MD&A, or discussed in the Annual Information Form. 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.

Third Quarter 2023 Results Conference Call and Webcast

DATE:	Wednesday, November 15, 2023
TIME:	8:30 a.m. ET
DIAL-IN NUMBER:	416-764-8650 or 1-888-664-6383
INSTANT JOIN BY PHONE:	https://emportal.ink/3nhybYj  (Click the URL to join the conference call by phone)
CONFERENCE ID:	41237330
LIVE WEBCAST:	https://app.webinar.net/GD3PnoROyJv

About Flagship Communities Real Estate Investment Trust

Flagship Communities Real Estate Investment Trust is an internally managed, unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT has been formed to own and operate a portfolio of income-producing manufactured housing communities located in Kentucky, Indiana, Ohio, Tennessee, Arkansas, Missouri, and Illinois, including a fleet of manufactured homes for lease to residents of such housing communities.

SOURCE Flagship Communities Real Estate Investment Trust

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