Flagship Communities Real Estate Investment Trust Announces Fourth Quarter 2020 Results

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TORONTO, March 19, 2021 /CNW/ - Flagship Communities Real Estate Investment Trust (TSX: MHC.U) ("Flagship REIT" or the "REIT") today released its fourth quarter 2020 results and results from  the REIT's formation period from August 12, 2020 to December 31, 2020. Results are presented in U.S. dollars unless otherwise noted and all references to the fourth quarter 2020 results reflect the period from October 7, 2020 to December 31, 2020 because Flagship REIT had no operations prior to October 7, 2020, the date on which it completed its initial public offering ("IPO") of trust units. The results presented are compared to the financial forecast contained in the REIT's IPO prospectus dated September 28, 2020, prorated to correspond with the 25-day period from October 7, 2020 to October 31, 2020 plus the period November 1, 2020 to December 31, 2020 (the "pro-rated forecast").

Summary of Fourth Quarter 2020 Results:

• Acquired seven Manufactured Housing Communities ("MHC") consisting of 379 lots within the REITs current operational footprint for $12.9 million
• Revenue was $8.3 million, approximately $0.2 million higher than the pro-rated forecast
• Net Operating Income ("NOI") was $5.5 million, which is approximately $0.2 million higher than the pro-rated forecast
• NOI Margin was 66.2% which exceeded the pro-rated forecast of 65.2% by 1.0%
• Adjusted Funds from Operations ("AFFO") was $2.2 million, which exceeded the pro-rated forecast by 6%
• Same Community Occupancy increased by 2.6% as of December 31, 2020 versus the same period in 2019
• Rent collections for the fourth quarter 2020 were 98.5% which is consistent with prior periods
• Subsequent to year-end, Flagship REIT acquired an MHC in the Louisville, Kentucky market for $3.0 million with 77 lots and an MHC in the Bowling Green, Kentucky market for $3.0 million with 74 lots

"We ended 2020 on a positive note with the acquisition of seven MHCs as well as exceeding many of our financial and operational forecasts," said Kurt Keeney, President and Chief Executive Officer. "Our focus for 2021 is to continue to build unitholder value by executing on our accretive growth strategy and optimizing our existing operations."  

Financial Performance Overview

($000s except per share amounts)	For the Period October 7, 2020 through December 31, 2020
	Actual Results	Pro-Rated Forecast^2	Variance
Revenue, Total Portfolio	8,304	8,132	172
Revenue, Same Community^1 Properties	8,262	8,132	130
Revenue, acquisitions	42	-	42
Net Income (loss) and comprehensive income (loss)	47,338	1,784	45,554
NOI^1, Total Portfolio	5,497	5,301	196
NOI^1, Same Community properties	5,472	5,301	171
NOI^1, Acquisitions	25	-	25
NOI Margin^1, total portfolio	66.2%	65.2%	1.0%
NOI margin^1, Same Community properties	66.2%	65.2%	1.0%
NOI Margin^1, Acquisitions	58.5%	-	58.5%
FFO^1	2,697	2,456	241
FFO Per Unit^1(excluding over allotment)	N/A	0.214	N/A
FFO Per Unit^1(including over allotment)	0.220	0.200	0.020
AFFO^1	2,227	2,101	126
AFFO per Unit^1(excluding over allotment)	N/A	0.183	N/A
AFFO per Unit^1(including over allotment)	0.182	0.171	0.011
AFFO Payout Ratio^1 (excluding over allotment)	N/A	65.8%	N/A
AFFO Payout Ratio^1 (including over allotment)	67.0%	71.0%	(4%)

¹These measures are not recognized under International Financial Reporting Standards ("IFRS") and do not have standardized meanings prescribed by IFRS. Refer to section "Reconciliation of Non-IFRS Measures" for a reconciliation of these measures to standardized IFRS measures.

²The pro-rated forecast has been calculated by dividing the October forecast by 31 days and multiplying by 25 and then adding the full month of November and December. 

Revenue of $8.3 million during the fourth quarter 2020, was approximately $0.2 million higher than the pro-rated forecast, primarily due to higher than forecasted utility reimbursements as well as unplanned revenue from acquired properties during the quarter. NOI and NOI Margin for the fourth quarter 2020 was $5.5 million and 66.2% respectively, which is $0.2 million and 1% higher than the pro-rated forecast.

AFFO and AFFO per unit (including over allotment) was $2.2 million and $0.18 per unit respectively, which exceeded the pro-rated forecast by 6% and 6.4% respectively, during the fourth quarter of 2020.

Net income and comprehensive income was $47.3 million, which is approximately $45.6 million higher than the pro-rated forecast primarily as result of the bargain purchase gain, fair value gain on investment properties, and fair value gain on Class B Units which were not considered in the forecast.

Flagship REIT's total cash and cash equivalents were $11.5 million as of December 31, 2020. 

Operations Overview

Same Community Occupancy increased by 2.6% as of December 31, 2020 versus the same period in 2019. This increase was primarily due to the affordability of MHCs and in part, by the ongoing COVID-19 pandemic as outlined in the "COVID-19 Update" below. 

Rent collections for the fourth quarter were 98.5%, which was consistent with prior periods and demonstrates the strength and predictability of the MHC sector.

During the fourth quarter of 2020 and subsequent to year-end, Flagship REIT increased its MHC portfolio.

The REIT acquired seven MHCs during the fourth quarter of 2020 consisting of 379 lots within Flagship REIT's current operations footprint for $12.9 million. The acquisitions are expected to be immediately accretive to the REIT's AFFO per unit with additional above market growth over time.

Subsequent to year-end, Flagship REIT acquired an MHC with 77 lots in the Louisville Kentucky market for approximately $3.0 million and an MHC with 74 lots in the Bowling Green, Kentucky market also for approximately $3.0 million. The acquisitions are expected to be immediately accretive to Flagship REIT's AFFO per unit and provide further depth to the REIT's portfolio in its core markets. 

As of March 19, 2021, the REIT has 54 MHCs and 8,793 manufactured housing lots. The table below provides a summary of Flagship REIT's portfolio:

MHC Portfolio as of March 19, 2021
Total MHCs	(#)	54
Total Manufactured Housing Lots	(#)	8,793
Total Lot Occupancy	(%)	79.9
Total Lot AMR	(US$)	350

COVID-19 Update

A sizable number of Flagship REIT residents have been able to maintain their employment through the COVID-19 pandemic or are senior citizens on fixed incomes. The majority of Flagship REIT's residents are working or retired and most will receive a minimum of $1,400 per person including children, which are expected to arrive in April and May of 2021 from the recently passed President Biden stimulus bill. These stimulus checks are in addition to jobless benefits, child tax credits, health insurance subsidies and rent relief.

Flagship REIT believes COVID-19 has amplified the benefits of MHCs versus multi-family apartments.

Multi-family apartments typically have smaller living spaces, fewer bedrooms and bathrooms, shared indoor walls, shared laundry facilities, common areas and HVAC systems. Given the current landscape, these conditions, especially the shared facilities and common areas, are sub-optimal when everyone is mindful of social distancing requirements.

In contrast, MHCs are more amenable to social distancing and offer a better living experience. These homes are detached structures that do not share walls, utilities, air conditioning or heating with any other homes. Flagship REIT's customers typically enjoy two, three and four-bedroom homes, typically with two bathrooms. These homes also have a deck, yard, driveway and in-home laundry. Flagship REIT's MHCs also typically include recreational amenities and common areas, including clubhouses, green spaces, playgrounds, basketball courts, soccer fields, fishing lakes and after-school programming.

Flagship REIT continues to monitor the effects of COVID-19 within its communities.

At the onset of COVID-19, the REIT immediately instituted new policies to facilitate social distancing to ensure the safety of its residents and employees. For example, Flagship REIT closed clubhouses and playgrounds to reduce group gatherings and instituted an online rent payment policy which made the monthly rent payment process low contact. In addition, Flagship REIT property managers facilitated outdoor school and community meal services while remaining safe. The REIT also worked with local school districts at several locations to provide students participating in school from their homes with mobile Wi-Fi access.

Flagship REIT recently reopened playgrounds within its communities. In addition, several Flagship REIT locations are using their clubhouses as mobile vaccination locations for residents and employees. Flagship REIT is very proud of how its residents have come together to help the greater good during these difficult circumstances.

The REIT will continue to closely monitor COVID-19 developments and will update health and safety policies as required to ensure the highest level of safety for the REIT's residents and employees.

Outlook

Flagship REIT believes the MHC sector to be a prudent investment strategy that will create long-term value for a number of reasons:

• Defensive investment characteristics relative to other real estate asset classes;
• Consistent track record of outperformance irrespective of economic cycles;
• High barriers to entry for any competitors and new supply;
• Stable occupancy and growing rents;
• Lower capital expenditure requirements than many other real estate asset classes;
• Growing public sentiment toward a detached home relative to a multi-family apartment.

The REIT believes that macro characteristics and trends in the United States real estate and housing industry, as well as the MHC industry specifically, offer investors significant upside potential. These characteristics and trends include:

• Increasing household formations;
• Lower housing affordability;
• Declining single-family residential home ownership rates;
• Lack of new manufactured housing supply.

Flagship REIT believes it is well positioned to benefit from these dynamics in the residential real estate and housing industry.

Non-IFRS Measures

The REIT uses certain non-IFRS measures, including certain real estate industry metrics, to measure, compare and explain the operating results and financial performance 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. Please refer to the REIT's Management Discussion and Analysis for the period ended December 31, 2020 for further detail on non-IFRS measures.

Reconciliation of Non-IFRS Measures - FFO, FFO per Unit, AFFO and AFFO per Unit

Flagship REIT uses the following non-IFRS key performance indicators: FFO, FFO Per Unit, AFFO, AFFO Per unit and Same Community. Flagship REIT believes these non-IFRS measures and ratios provide useful supplemental information to both management and investors in measuring the financial performance and financial condition of the REIT. These measures and ratios do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similarly titled measures and ratios presented by other publicly traded real estate investment trusts and should not be construed as an alternative to other financial measures determined in accordance with IFRS (see "Non-IFRS Measures"). The REIT regards FFO and AFFO as key measures of operating performance. Please refer to the REIT's Management Discussion and Analysis for the period ended December 31, 2020 for further detail on non-IFRS measures.

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", "estimate" and other similar expressions. These statements are based on the REIT's expectations, estimates, forecasts and projections. 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 "Risk Factors" in the Prospectus available under the REIT's profile on SEDAR at www.sedar.com. 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. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, these 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.

Fourth Quarter 2020 Results Conference Call and Webcast

DATE:	Monday, March 22, 2021
TIME:	10:00 a.m. ET
DIAL-IN NUMBER:	647-427-7450 or 1-888-231-8191
CONFERENCE ID:	9938506
LIVE WEBCAST:	https://produceredition.webcasts.com/starthere.jsp?ei=1431824&tp_key=84c21d80de

About Flagship Communities Real Estate Investment Trust

Flagship Communities Real Estate Investment Trust is a newly-created, 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 and Tennessee; 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]