FLAGSHIP COMMUNITIES REAL ESTATE INVESTMENT TRUST ANNOUNCES FOURTH QUARTER AND FULL YEAR 2022 RESULTS

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

TORONTO, March 16, 2023 /CNW/ - Flagship Communities Real Estate Investment Trust ("Flagship" or the "REIT") (TSX: MHC.U) (TSX: MHC.UN) today released its fourth quarter and full year 2022 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.

Fourth Quarter 2022 Results:

• Rental revenue for the three months ended December 31, 2022 was $15.7 million, an increase of 28.8% compared to $12.2 million for the three months ended December 31, 2021
• Same Community Revenue¹ for the three months ended December 31, 2022 was $10.3 million, up 8.2% compared to $9.5 million for the three months ended December 31, 2021
• Net (loss) income and comprehensive (loss) income for the three months ended December 31, 2022 was $(0.7) million compared to $53.5 million for the three months ended December 31, 2021, primarily because of the fair value gain on investment property for the three months ended December 31, 2022 being approximately $54 million less than in the same period in 2021
• Adjusted Funds From Operations ("AFFO") per unit (diluted)² for the three months ended December 31, 2022 was $0.209 compared to $0.223 for the three months ended December 31, 2021 which was a decrease of $(0.014) per Unit, or 6.3%, and was driven by increases in due diligence expenses, state income taxes, and audit and tax fees. Due diligence expenses are from noncompleted acquisitions that failed to meet the REIT's investment criteria
• Net Operating Income ("NOI") for the three months ended December 31, 2022 was $10.4 million, up 26.4% compared to $8.2 million for the three months ended December 31, 2021
• Same Community NOI¹ for the three months ended December 31, 2022 was $6.9 million, an increase of 10.4%, compared to $6.3 million for the three months ended December 31, 2021
• NOI Margin¹ for the three months ended December 31, 2022 was 66.0% compared to 67.2% for the three months ended December 31, 2021, a slight decrease due to higher costs associated with newly acquired properties during the year
• Same Community NOI Margin¹ for the three months ended December 31, 2022 was 67.5%, an increase of 1.3% compared to 66.2% for the three months ended December 31, 2021
• Debt to Gross Book Value¹ as at December 31, 2022 was 42.9% compared to 37.3% as at December 31, 2021
• Total occupancy was 83.1% as at December 31, 2022, a 0.3% increase compared to December 31, 2021
• Same Community¹ occupancy increased to 82.2% as at December 31, 2022, an increase of 1.6% compared to 80.6% as at December 31, 2021
• Rent Collections¹ for the three months ended December 31, 2022 was 99.5%, up from 98.6% for the three months ended December 31, 2021
• Acquired a resort-style Manufactured Housing Community ("MHC") in the key market of Marblehead Ohio, where Flagship has an existing market presence for approximately $7.8 million
• Subsequent to year-end, agreed to acquire a 20-acre, high-quality MHC in Austin, Indiana that includes 94 developed lots and 26 lots for additional expansion, totaling 120 MHC homesites for approximately $2.0 million by the issuance of 120,598 Class B units by Flagship Operating, LLC, a subsidiary of the REIT from a related party, Empower Park, LLC

Full Year 2022 Results:

• Increased monthly cash distribution to unitholders by approximately 5% to $0.0468 per REIT unit or $0.562 per REIT unit on an annualized basis, commencing with the distribution paid in December 2022, representing the second consecutive year of increased distributions since Flagship completed its initial public offering in October 2020
• Rental revenue for the year ended December 31, 2022 was $58.8 million, an increase of 36.5% compared to $43.1 million for the year ended December 31, 2021
• Same Community Revenue¹ for the year ended December 31, 2022 was $40.7 million, up 7.5% compared to $37.8 million for the year ended December 31, 2021
• Net income and comprehensive income for the year ended December 31, 2022 was $42.7 million, a decrease from $60.0 million for the year ended December 31, 2021
• AFFO per unit (diluted)² for the year ended December 31, 2022 was $0.932, which was an increase of $0.055 per Unit or 6.3% compared to $0.877 for the year ended December 31, 2021
• NOI for the year ended December 31, 2022 was $38.9 million, an increase of 35.8% compared to $28.7 million for the year ended December 31, 2021
• Same Community NOI¹ for the year ended December 31, 2022 was $27.3 million, an increase of $2.2 million or 8.6% compared to $25.1 million for the year ended December 31, 2021
• NOI Margin¹ for the year ended December 31, 2022 was 66.2% compared to 66.5% for the year ended December 31, 2021, a slight decrease due to higher costs associated with newly acquired properties during the year
• Same Community NOI Margin¹ for the year ended December 31, 2022 was 67.1%, an increase of 0.8% compared to 66.3% for the year ended December 31, 2021
• Rent Collections¹ for the year ended December 31, 2022 was 98.7%, which is slightly down from 99.2% for the year ended December 31, 2021

¹See "Other Real Estate Industry Metrics" 

²See "Non-IFRS Financial Measures"

"During 2022, Flagship's rental revenue and Same Community revenue increased by 36.5% and 7.5% respectively, over the prior year, which speaks to both our strong operational performance in the year and the solid market fundamentals of the MHC industry," said Kurt Keeney, President and CEO. "Rising inflation, coupled with high rental and mortgage interest rates continue to put a strain on housing affordability for many Americans. Manufactured homes remain a viable dwelling option for many Americans given that it's a cost-effective path to home ownership coupled with the many amenities offered to residents. For these reasons we maintain our positive outlook for the MHC industry."

Financial Summary

($000s except per share amounts)
	For the three months ended Dec. 31, 2022	For the three months ended Dec. 31, 2021	Variance	For the Year Ended Dec. 31, 2022	For the Year Ended Dec. 31, 2021	Variance
Rental revenue and related income	15,700	12,192	3,508	58,798	43,075	15,723
Revenue, Same Community^1	10,289	9,507	782	40,659	37,831	2,828
Revenue, Acquisitions^1	5,411	2,685	2,726	18,139	5,244	12,895
Net (loss) income and comprehensive (loss) income	(684)	53,451	(54,135)	42,682	60,008	(17,326)
NOI, total portfolio	10,367	8,199	2,168	38,933	28,661	10,272
NOI, Same Community^1	6,949	6,297	652	27,267	25,097	2,170
NOI, Acquisitions^1	3,418	1,902	1,516	11,666	3,564	8,102
NOI Margin^1, total portfolio	66.0 %	67.2 %	(1.2) %	66.2 %	66.5 %	(0.3) %
NOI Margin^1, Same Community^1	67.5 %	66.2 %	1.3 %	67.1 %	66.3 %	0.8 %
NOI Margin^1, Acquisitions^1	63.2 %	70.8 %	(7.6) %	64.3 %	68.0 %	(3.7) %
FFO^2	4,865	4,618	247	21,201	15,869	5,332
FFO Per Unit^2	0.248	0.263	(0.015)	1.080	1.034	0.046
AFFO^2	4,114	3,924	190	18,302	13,457	4,845
AFFO Per Unit^2	0.209	0.223	(0.014)	0.932	0.877	0.054
AFFO Payout Ratio^2	64.8 %	59.5 %	5.3 %	57.6 %	57.6 %	0.0 %
Weighted average units (Diluted)	19,643,642	17,559,743	2,083,899	19,630,160	15,336,933	4,293,227
1.  See "Other Real Estate Industry Metrics" 2.  See "Non-IFRS Financial Measures"

Financial Overview

Rental revenue and related income in the fourth quarter of 2022 was $15.7 million, up 28.8% compared to the same period last year primarily due to Acquisitions, lot rent increases and occupancy increases across the portfolio. Rental revenue and related income for the year ended December 31, 2022 was $58.8 million, which was an increase of 36.5% compared to the prior period last year for the same reasons.

Same Community Revenues for the fourth quarter and year ended December 31, 2022, exceeded the fourth quarter and year ended December 31, 2021 by approximately $0.8 million and $2.8 million or 8.2% and 7.5%, respectively. These increases were driven by increasing monthly lot rent year over year as well as growth in Same Community occupancy and increases in utility revenue.

Net (loss) income and comprehensive (loss) income for the three months ended December 31, 2022 was $(0.7) million, approximately $54.1 million less compared to the same period last year, as a result of the fair value gain on investment property being lower than in the same period in 2021. Net income and comprehensive income for year ended December 31, 2022 was $42.7 million, a decrease of $17.3 million from the prior period for the same reason.

NOI and NOI Margin for the fourth quarter of 2022 were $10.4 million and 66.0%, respectively, compared to $8.2 million and 67.2% during the fourth quarter of 2021. NOI and NOI Margin for the year ended December 31, 2022 were $38.9 million and 66.2%, respectively, compared to $28.7 million and 66.5% for the year ended December 31, 2021. The increases in NOI were primarily driven by the REIT's Acquisitions, lot rent growth and cost containment efforts, while the decreases in NOI Margins were driven by (7.6)% and (3.7)% declines, respectively, from NOI Margins on Acquisitions. Value-add Acquisitions in new markets during 2021 and 2022 incurred higher than anticipated costs as the REIT worked to integrate and implement its operational strategies. The REIT expects these value-add acquisitions will become accretive and increase NOI Margins in the long term.

Same Community NOI Margins for the fourth quarter and year ended December 31, 2022 increased 1.3% and 0.8%, respectively, over the same periods of time last year, demonstrating Flagship's ability to develop operational efficiencies the longer communities are owned by the REIT.

Same Community occupancy of 82.2% increased by 1.6% as of December 31, 2022, 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 desirable locations.

AFFO for the fourth quarter of 2022 was $4.1 million, an increase of 4.8% from the fourth quarter of 2021. AFFO per Unit for the fourth quarter of 2022 was $0.209 per unit, a decrease from $0.223 from the same period last year. AFFO and AFFO per Unit for the year ended December 31, 2022 were $18.3 million and $0.932, a 36.0% and 6.3% increase, respectively, compared to the year ended December 31, 2021.

Rent Collections for the fourth quarter of 2022 were 99.5%, an increase from 98.6% from the three months ended December 31, 2021.

As of December 31, 2022, Flagship's total cash and cash equivalents were $16.9 million with no near-term debt obligations. The REIT's Weighted Average Mortgage Term (see "Other Real Estate Industry Metrics" for more information) to maturity was 11.7 years, with no balloon payments due in the next 12 months.

Operations Overview

During the fourth quarter 2022, Flagship acquired a resort-style MHC in the key market of Marblehead Ohio, where Flagship has an existing market presence for approximately $7.8 million.

Marblehead is a residential MHC located on a channel leading to Lake Erie in northern Ohio. The Marblehead community is fully occupied, comprising 100 lots with each home including a boat slip as well as access to a community swimming pool. The 20-acre community is steps away from the Great Egret Marsh Nature Preserve and East Harbor State Park, a short drive to Marblehead Lighthouse State Park and Lake Point State Park, a drive-through African Safari Wildlife Park, as well as numerous historical sites as well as restaurants, shopping, and wineries. It is also a short drive to the Cedar Point Amusement Park.

In November 2022, as part of Flagship's commitment to invest in its communities, the REIT donated a new 2,000 square foot building along with furnishings and equipment for Grandin Evolution School, which is a partnership with Evansville Vanderburgh School Corporation and the YMCA in Evansville, Indiana. The new school building will allow the program and services to expand from 40 children to 75 children per day.

Subsequent to year-end, Flagship agreed to acquire a 20-acre, high-quality MHC in Austin, Indiana that includes 94 developed lots and 26 lots for additional expansion, totaling 120 MHC homesites for approximately $2.0 million by the issuance of 120,598 Class B units by Flagship Operating, LLC, a subsidiary of the REIT from a related party, Empower Park, LLC.

Flagship continues to manage and monitor water usage in most of its MHCs. The REIT has ongoing sub-metering and water re-capture programs to help conserve water and detect leaks. Historically, sub-metering has reduced water consumption by up to 30% compared to previously un-monitored water usage. Flagship continues to implement sub-metering and water re-capture programs across most of its MHCs.

Flagship is also focused on energy conservation across its MHCs through its solar lighting program. The REIT's solar lighting installation program is underway and Flagship's goal is to transform its community street lighting into a 100% solar-powered system.     

As at December 31, 2022, the REIT owned a 100% interest in a portfolio of 67 MHCs with 12,131 lots as well as two RV resort communities with 470 sites. The table below provides a summary of the REIT's portfolio as of December 31, 2022, compared to December 31, 2021:

		As of December 31, 2022	As of December 31, 2021
Total communities	(#)	69	63
Total lots	(#)	12,601	11,328
Weighted Average Lot Rent^1	(US$)	388	369
Occupancy	( %)	83.1	82.8
Debt to Gross Book Value^1	( %)	42.9	37.3
Weighted Average Mortgage Interest Rate^1	( %)	3.78	3.43
Weighted Average Mortgage Term^1	(Years)	11.7	10.7
1.  See "Other Real Estate Industry Metrics"

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 International Financial Reporting Standards ("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 recorded as finance cost under IFRS (including distributions on the Class B Units), unrealized fair value adjustments to investment properties, 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 or (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 pear 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 metrics that are not disclosed in the REIT's financial statements:

• "Acquisitions" means the REIT's properties, excluding Same Communities (as defined below) and such measures (i.e.: Revenue, Acquisitions; NOI, Acquisitions; and NOI Margin, Acquisitions) are 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.
• "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, 2021, by the REIT and such measures (i.e.: Same Community Revenue or Revenue, Same Community; Same Community NOI or NOI, Same Community; NOI Margin, Same Community; and Same Community occupancy) are used by management to evaluate period-over-period.
• "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 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, AFFO and AFFO per Unit

($000s, except per unit amounts)	For the three months ended December 31, 2022	For the three months ended December 31, 2021	For the year ended December 31, 2022	For the year ended December 31, 2021
Net (loss) income and comprehensive (loss) income	(684)	53,451	42,682	60,008
Adjustments to arrive at FFO
Depreciation	81	49	290	174
Fair value adjustments - Class B units	6,838	6,520	(16,714)	31,457
Distributions on Class B units	756	717	2,950	2,794
Fair value adjustment – investment properties	(2,156)	(56,123)	(7,952)	(78,813)
Fair value adjustment – unit based compensation	30	4	(55)	13
Transaction costs	-	-	-	236
Funds from Operations ("FFO")	4,865	4,618	21,201	15,869
FFO per Unit (diluted)	0.248	0.263	1.080	1.034
Adjustments to arrive at AFFO
Accretion of mark-to-market adjustments on mortgage payable	(257)	(258)	(1,029)	(1,029)
Capital Expenditure Reserves	(494)	(436)	(1,870)	(1,383)
AFFO	4,114	3,924	18,302	13,457
AFFO per Unit (diluted)	0.209	0.223	0.932	0.877

Calculation of Other Real Estate Industry Metrics

NOI and NOI Margin

($000s)	For the three months ended December 31, 2022	For the three months ended December 31, 2021	For the year ended December 31, 2022	For the year ended December 31, 2021
Rental revenue and related income	15,700	12,192	58,798	43,075
Property operating expenses	5,333	3,993	19,865	14,414
NOI	10,367	8,199	38,933	28,661
NOI Margin	66.0 %	67.2 %	66.2 %	66.5 %

Forward-Looking Statements

This press 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 under the heading "Outlook" and otherwise concerning: macro characteristics and trends in the United States real estate and housing industry, as well as the MHC industry specifically.

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 press 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 press 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; the impact of COVID-19 on the MHCs; further MHC acquisitions by the REIT; the applicability of any government regulation concerning MHCs and other residential accommodations, including as a result of COVID-19; the availability of debt financing and future interest rates; expenditures and fees in connection with the ownership of MHCs; 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, as well as risk factors 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. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, certain forward-looking statements included in this press release may be considered a "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 press release. Forward-looking statements are made as of the date of this press 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 2022 Results Conference Call and Webcast

DATE:	Friday, March 17, 2023
TIME:	8:30 a.m. ET
DIAL-IN NUMBER:	416-764-8650 or 1-888-664-6383
INSTANT JOIN BY PHONE:	https://connectnow1.accutel.com/EventMeet/rest/users/login?password=lnvvokroo5u6q (Click the URL to join the conference call by phone)
CONFERENCE ID:	26129223
LIVE WEBCAST:	https://app.webinar.net/7nKR50rQ3km

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]