Flagship Communities Real Estate Investment Trust Announces Second Quarter 2021 Results

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TORONTO, Aug. 10, 2021 /CNW/ - Flagship Communities Real Estate Investment Trust (TSX: MHC.U) ("Flagship REIT" or the "REIT") today released its second quarter 2021 results for the three and six months ended June 30, 2021. Results are presented in U.S. dollars unless otherwise noted. The results presented are compared to the financial forecast contained in the REIT's initial public offering ("IPO") prospectus dated September 28, 2020 (the "forecast").

Summary of Second Quarter 2021 Results:

Financial Highlights:

• Revenue was $9.8 million, approximately $0.8 million higher than the forecast due mainly to the acquisitions completed since the REIT's IPO
• Same Community Revenue was $9.1 million, a slight increase compared to the forecast
• Net Operating Income ("NOI", see "Non-IFRS Financial Measures" below) was $6.4 million, which is approximately $0.6 million higher than the forecast
• Same Community NOI was $6.1 million, which is approximately $0.3 million higher than the forecast
• NOI Margin (see "Non-IFRS Financial Measures" below) was 65.4% which exceeded the forecast of 64.4%
• Same Community Occupancy (see "Non-IFRS Financial Measures" below) of 80.6% increased by 1.4% as of June 30, 2021, compared to December 31, 2020
• Rent collections for the three months ended was 98.8%, which was a slight decrease quarter-over-quarter, but was consistent with prior periods

Operating Highlights:

• Entered two new operating regions during the quarter with acquisitions in Arkansas and Missouri
• Continued to consolidate presence in existing markets with acquisition of expansion land adjacent to currently-owned Manufactured Housing Community ("MHC") in Indiana

Capital Markets Highlights:

• Completed equity offering at a price of $18.00 per unit for total gross proceeds of $81.0 million
• Subsequent to quarter-end, the REIT signed a commitment for two loans in the amount of $29.7 million with a 3.08% fixed interest rate for 20 years; the loans have an interest-only period for the first 84 months and will be amortized over 30 years

"In addition to our strong operating and financial performance during the quarter, we demonstrated our ability to successfully apply our business model across new operating regions in the U.S.," said Kurt Keeney, President and Chief Executive Officer. "Our Arkansas and Missouri communities are both near the highly populated major city centers of Little Rock and St. Louis, which are characteristics we look for when entering new markets. By adhering to a strict and disciplined strategy for growth, we are able to carefully select where we want to operate in order to benefit from existing operational synergies and generate economies of scale."

Financial Performance Overview

($000s except per share amounts)	For the three months ended June 30, 2021
	Actual Results	Forecast	Variance
Revenue, Total Portfolio	9,835	9,029	806
Revenue, Same Community^1 Properties	9,107	9,029	78
Revenue, acquisitions	728	-	728
Net (loss) Income and comprehensive (loss) income	(1,945)	2,052	(3,997)
NOI^1, Total Portfolio	6,430	5,819	611
NOI^1, Same Community^1 properties	6,104	5,819	285
NOI^1, Acquisitions	326	-	326
NOI Margin^1, total portfolio	65.4%	64.4%	1.0%
NOI Margin^1, Same Community^1 properties	67.0%	64.4%	2.6%
NOI Margin^1, Acquisitions	44.8%	-	44.8%
FFO^1	3,342	2,777	565
FFO Per Unit^1(excluding over allotment - IPO)	N/A	0.237	N/A
FFO Per Unit^1(including over allotment - IPO)	0.255	0.219	0.035
AFFO^1	2,754	2,304	450
AFFO Per Unit^1(excluding over allotment - IPO)	N/A	0.197	N/A
AFFO Per Unit^1(including over allotment - IPO)	0.210	0.182	0.028
AFFO Payout Ratio^1 (excluding over allotment - IPO)	N/A	64.9%	N/A
AFFO Payout Ratio^1 (including over allotment - IPO)	60.7%	70.1%	(9.3%)
^1These measures are not recognized under International Financial Reporting Standards ("IFRS") and do not have standardized meanings prescribed by IFRS. See "Non-IFRS Financial Measures" for more information.

Revenue of $9.8 million during the second quarter 2021, was approximately $0.8 million higher than the forecast, primarily due to the acquisitions completed since the REIT's IPO. NOI and NOI Margin for the second quarter 2021 was $6.4 million and 65.4% respectively, which is $0.6 million and 1.0% higher than the forecast, due in part to the REIT's cost containment initiatives.

Adjusted Funds from Operations ("AFFO", see "Non-IFRS Financial Measures" below) and AFFO per Unit was $2.8 million and $0.210 per unit respectively, both of which exceeded the forecast by 19.5% and 15.4% during the second quarter 2021.

Net loss and comprehensive loss was $1.9 million, compared to net income of $2.1 million in the forecast. The Net loss and comprehensive loss was primarily due to a non-cash, fair value loss on the class B units of the REIT's subsidiary, Flagship Operating, LLC ("Class B Units") partially offset by the fair value gain on investment properties, neither of which were considered in the forecast.

Same Community Occupancy of 80.6% increased by 1.4% as of June 30, 2021 compared to December 31, 2020. The Same Community Occupancy rate remained steady primarily due to the affordability of MHCs and in part, due to the ongoing COVID-19 pandemic since unlike multi-family apartments, MHCs are detached structures that do not share walls, utilities, air conditioning or heating with any other homes and typically have a deck, yard, driveway and in-home laundry.

Rent collections for the second quarter 2021 were 98.8%, which was a slight decrease quarter-over-quarter, but consistent with prior periods, further demonstrating the strength and predictability of the MHC sector.

As at June 30, 2021, Flagship REIT's total cash and cash equivalents were $79.3 million with no near-term debt obligations. 

Operations Overview

During the second quarter of 2021, Flagship REIT increased the size of its MHC portfolio and entered into two new operating regions.

In May 2021, Flagship REIT completed the acquisition of an MHC in Little Rock, Arkansas for approximately $5.3 million. The acquisition is 76.6% leased and is expected to be immediately accretive to the REIT's AFFO on a per unit basis. In addition to being the REIT's first acquisition outside of the REIT's main geographic footprint, this acquisition provides Flagship REIT with an entry point into Arkansas while leveraging management synergies with nearby existing communities in southwestern Kentucky.

Subsequent to quarter-end, Flagship REIT completed the acquisition of two high-quality MHCs in Anderson, Indiana and St. Louis, Missouri, comprising 677 lots for a purchase price of approximately $66.4 million.

The St. Louis acquisition comprises of 502 lots across approximately 103 acres and is the REIT's first entry point into the state of Missouri. The community has a strong occupancy rate of 97% and includes 191 rental homes. Similar to its acquisition in Arkansas, operating in Missouri will allow Flagship REIT to leverage existing management synergies with the REIT's nearby portfolio.

The Anderson acquisition strengthens Flagship REIT's footprint in its existing core market of Indiana. This MHC comprises of 175 lots across approximately 70 acres and is close to Anderson University, state parks, historical attractions and major entertainment attractions.

In nearby Evansville, Indiana, Flagship REIT completed the acquisition of three acres of expansion land adjacent to the REIT's currently owned MHC community of Pinecrest Pointe. In addition to being situated in an area that is familiar to Flagship REIT, this adjacent land presents the REIT with marketing opportunities from road frontage and 10,000 square feet of self-storage, which provides the REIT with immediate cash flow.

Flagship REIT funded the Anderson, Indiana and St. Louis, Missouri, acquisitions through an equity financing of $81 million that the REIT completed in June 2021. Using the proceeds of the financing toward these acquisitions allowed Flagship REIT to maintain its strong balance sheet, while enabling the REIT to continue to evaluate additional strategic acquisitions both within and adjacent to its existing operating footprint.

As of June 30, 2021, the REIT had 55 MHCs and 8,960 manufactured housing lots. The table below provides a summary of Flagship REIT's portfolio:

MHC Portfolio as of June 30, 2021
Total MHCs	(#)	55
Total Manufactured Housing Lots	(#)	8,960
Total Lot Occupancy	(%)	80.7
Total Lot Average Monthly Revenue	(US$)	$359

Subsequent Events

On August 10, 2021, the REIT announced that it has signed a commitment for two loans in the amount of $29.7 million with a 3.08% fixed interest rate for 20 years with the first 84 payments being interest only. These loans have an interest-only period for the first 84 months and will be amortized over 30 years. The loans will be used to help the REIT finance future acquisitions and for general business purposes.

Outlook

Flagship REIT was formed to provide investors with the opportunity to invest in the MHC industry in the United States, while benefiting from the investment and operational expertise of Flagship's vertically integrated management platform.

The 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.

Flagship 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 Financial Measures

The REIT uses certain non-IFRS financial measures, including certain real estate industry metrics such as FFO, FFO Per Unit, AFFO, AFFO Per Unit and Same Community, to measure, compare and explain the operating results, financial performance and financial condition of the REIT. The REIT also uses AFFO in assessing its distribution paying capacity and NOI is a key input in determining the value of the REIT's properties.

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.

FFO is defined as IFRS consolidated net income 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. The REIT's method of calculating FFO is substantially in accordance with the recommendations of the Real Property Association of Canada ("REALPAC").

AFFO is defined as FFO adjusted for items such as maintenance capital expenditures, and certain non-cash items such as amortization of intangible assets, premiums and discounts on debt and investments. The REIT's method of calculating AFFO is substantially in accordance with REALPAC's recommendations. The REIT uses a capital expenditure reserve of $60 (dollars/annual) per lot and $1,000 (dollars/annual) per rental home 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.

NOI is defined as total revenue from properties (i.e., rental revenue and other property income) less direct property operating expenses in accordance with IFRS.

Same Community results are the results of the MHCs owned throughout the applicable period and such measure is used by management to evaluate period-over-period performance of investment properties. These results remove the impact of dispositions or acquisitions of investment properties.

Please refer to the REIT's Management Discussion and Analysis for the period ended June 30, 2021 for further detail on non-IFRS financial measures, including reconciliations of these measures to standardized 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", "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; macro characteristics and trends in the United States real estate and housing industry, as well as the MHC industry specifically; and other statements under "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; 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. 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 news 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 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.

Second Quarter 2021 Results Conference Call and Webcast

DATE:	Wednesday, August 11, 2021
TIME:	10:00 a.m. ET
DIAL-IN NUMBER:	416-764-8650 or 1-888-664-6383
CONFERENCE ID:	08188150
LIVE WEBCAST:	https://flagshipcommunities.com/investor-relations/presentations-and-events/

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, Tennessee, Arkansas and Missouri; 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]