FLAGSHIP COMMUNITIES REAL ESTATE INVESTMENT TRUST ANNOUNCES SECOND QUARTER 2023 RESULTS

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

TORONTO, Aug. 8, 2023 /CNW/ - Flagship Communities Real Estate Investment Trust ("Flagship" or the "REIT") (TSX: MHC.U) (TSX: MHC.UN) today released its second 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.

Second Quarter 2023 Results:

• Rental revenue for the three months ended June 30, 2023 was $17.4 million, an increase of 21.0% compared to $14.4 million for the three months ended June 30, 2022
• Same Community Revenue¹ for the three months ended June 30, 2023 was $15.1 million, up 9.1% compared to $13.9 million for the three months ended June 30, 2022
• Net income and comprehensive income for the three months ended June 30, 2023 was $21.4 million compared to $26.0 million for the three months ended June 30, 2022
• Adjusted Funds From Operations ("AFFO") per unit (diluted)² for the three months ended June 30, 2023 was $0.260, an increase of 8.3% compared to $0.240 for the three months ended June 30, 2022
• Net Operating Income ("NOI") for the three months ended June 30, 2023 was $11.6 million, up 22.4% compared to $9.5 million for the three months ended June 30 2022
• Same Community NOI¹ for the three months ended June 30, 2023 was $10.0 million, an increase of 9.4%, compared to $9.2 million for the three months ended June 30, 2022
• NOI Margin¹ for the three months ended June 30, 2023 was 66.6% compared to 65.9% for the three months ended June 30, 2022
• Same Community NOI Margin¹ for the three months ended June 30, 2023 was 66.3% compared to 66.1% for the three months ended June 30, 2022
• Debt to Gross Book Value¹ as at June 30, 2023 was 39.3% compared to 42.9% as at December 31, 2022
• Total portfolio occupancy was 83.3% as at June 30, 2023, no change compared to December 31, 2022
• Same Community¹ occupancy increased to 84.9% as at June 30, 2023, an increase of 1.3% compared to 83.6% as at June 30, 2022, demonstrating the REIT's ability to drive occupancy growth utilizing the home ownership model
• Rent Collections¹ for the three months ended June 30, 2023 was 98.9%, up from 98.2% for the three months ended June 30, 2022
• In May 2023, Flagship raised gross proceeds of $3.0 million pursuant to the at-the-market Offering announced in May 2022 and in June 2023, the REIT re-established a $50 million at-the-market equity program, which provides additional financing flexibility should it be required in the future
• Acquired three Manufactured Housing Communities ("MHC") in Indiana, Arkansas and Tennessee, for a purchase price of approximately US$21 million
• Following the receipt of the three highest national awards for excellence in manufactured housing by The Manufactured Housing Institute ("MHI"), Flagship received the Kentucky Manufactured Housing Institute's ("KMHI") highest award for Community of the Year for the second consecutive year.

¹See "Other Real Estate Industry Metrics" 

2See "Non-IFRS Financial Measures"

"Flagship continued to demonstrate the merits of its business model with another strong quarter of financial and operating results," said Kurt Keeney, President and CEO. "Year-over-year improvements in NOI, Same Community Revenue, and Same Community NOI reaffirm the merits and consistency of our business model. We also continue to expand our presence in existing markets and improve our operating efficiencies through strategic acquisitions including three MHCs in Indiana, Arkansas, and Tennessee that we completed during the quarter."

Financial Summary

($000s except per share amounts)
	For the three months ended Jun. 30, 2023	For the three months ended Jun. 30, 2022		Variance		For the six months ended Jun. 30, 2023		For the six months ended Jun. 30, 2022		Variance
Rental revenue and related income	17,379	14,363		3,016		34,137		28,056		6,081
Same Community Revenue^1	15,147	13,888		1,259		29,999		27,425		2,574
Acquisitions Revenue^1	2,232	475		1,757		4,138		631		3,507
Net income and comprehensive income	21,391	26,024		(4,633)		37,606		28,456		9,150
NOI, total portfolio	11,578	9,460		2,118		22,696		18,718		3,978
Same Community NOI^1	10,042	9,181		861		19,833		18,395		1,438
Acquisitions NOI^1	1,536	279		1,257		2,863		323		2,540
NOI Margin^1, total portfolio	66.6 %	65.9 %		0.7 %		66.5 %		66.7 %		(0.2) %
Same Community NOI Margin^1	66.3 %	66.1 %		0.2 %		66.1 %		67.1 %		(1.0) %
Acquisitions NOI Margin^1	68.8 %	58.7 %		10.1 %		69.2 %		51.2 %		18.0 %
FFO^2	6,233	5,434		799		12,136		10,999		1,137
FFO Per Unit^2	0.297	0.277		0.020		0.594		0.561		0.033
AFFO^2	5,468	4,716		752		10,621		9,572		1,049
AFFO Per Unit^2	0.260	0.240		0.020		0.520		0.488		0.032
AFFOPayout Ratio^2	53.7 %	55.7 %		(1.9) %		53.6 %		54.8 %		(1.2) %
Weighted average units (Diluted)	21,019,096	19,631,420		1,387,676		20,413,979		19,619,342		794,637
1.  See "Other Real Estate Industry Metrics" 2.  See "Non-IFRS Financial Measures"

Financial Overview

Rental revenue and related income in the second quarter of 2023 was $17.4 million, up 21.0% compared to the same period last year primarily due to Acquisitions, lot rent increases and occupancy increases across the portfolio.

Same Community Revenues of $15.1 million for the second quarter ended June 30, 2023, exceeded the second quarter ended June 30, 2022 by approximately $1.3 million or 9.1%. This increase was driven by higher monthly lot rent year over year as well as growth in Same Community Occupancy.

Net income and comprehensive income for the three months ended June 30, 2023 was $21.4 million, approximately $4.6 million less than the same period last year, as a result of the fair value gain on Class B Units being less than in the same period in 2022.

NOI for the second quarter of 2023 was $11.6 million, compared to $9.5 million, an increase of 22.4% compared to the second quarter of 2022. The increase in NOI was primarily driven by the REIT's Acquisitions, lot rent growth and cost containment efforts.

NOI Margins and Same Community NOI Margins were 66.6% and 66.3% in the second quarter of 2023, an increase of 0.7% and 0.2% compared to the three months ended June 30, 2022, respectively. 

Same Community occupancy of 84.9% increased by 1.3% as of June 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 desirable locations.

AFFO for the second quarter of 2023 was $5.5 million, an increase of 15.9% from the second quarter of 2022. AFFO per Unit for the second quarter of 2023 was $0.260 per unit, an increase of 8.3% from $0.240 from the same period last year.

Rent Collections for the second quarter of 2023 were 98.9%, an increase from 98.2% from the three months ended June 30, 2022.

In May 2023, Flagship raised gross proceeds of $3.0 million pursuant to the at-the-market Offering ("ATM") announced in May 2022. In June 2023, Flagship re-established the ATM Offering which allows the REIT to issue up to $50 million units to the public. The ATM equity program is designed to provide the REIT with additional financing flexibility should it be required in the future.      

As of June 30, 2023, Flagship's total cash and cash equivalents were $5.8 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 11.2 years, with no balloon payments due in the next 12 months.

Operations Overview

During the second quarter 2023, Flagship acquired three communities in Indiana, Arkansas and Tennessee for a purchase price of approximately US$21 million. The purchase price of US$21 million was funded with cash on the REIT's balance sheet, including from capital raised by the REIT's ATM equity program.

After being recognized by The MHI with the three highest national awards for excellence in manufactured housing, in June 2023, Flagship received the KMHI's highest award for Community of the Year for the second consecutive year.

The 2023 KMHI award recipient, Mosby's Pointe, is a 251-lot community located in Northern Kentucky. The community was recognized for its considerable transformation during the year, in which Flagship added an outdoor recreation center, including a state-of-the-art municipal grade playground and equipment, two basketball courts, soccer field and a paved walking trail. 

As at June 30, 2023, the REIT owned a 100% interest in a portfolio of 71 MHCs with 12,937 lots as well as two RV resort communities with 470 sites. The table below provides a summary of the REIT's portfolio as of June 30, 2023, compared to June 30, 2022:

		As of June 30, 2023	As of December 31, 2022
Total communities	(#)	73	69
Total lots	(#)	13,407	12,601
Weighted Average Lot Rent^1	(US$)	415	388
Total Portfolio Occupancy	( %)	83.3	83.1
Same Community Occupancy	( %)	84.9	83.6^2
Debt to Gross Book Value^1	( %)	39.3	42.9
Weighted Average Mortgage Interest Rate^1	( %)	3.78	3.78
Weighted Average Mortgage Term^1	(Years)	11.2	11.7
1.  See "Other Real Estate Industry Metrics" 2.  As of June 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 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.
• "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, 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 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, AFFO and AFFO per Unit

($000s, except per unit amounts)	For the three months ended Jun. 30, 2023	For the three months ended Jun. 30, 2022	For the six months ended Jun. 30, 2023	For the six months ended Jun. 30, 2022
Net income and comprehensive income	21,391	26,024	37,606	28,456
Adjustments to arrive at FFO
Depreciation	97	66	185	133
Fair value adjustments - Class B units	(4,191)	(24,821)	(241)	(21,637)
Distributions on Class B units	784	732	1,552	1,462
Fair value adjustment – investment properties	(11,791)	3,512	(26,954)	2,662
Fair value adjustment – unit based compensation	(57)	(79)	(12)	(77)
Funds from Operations ("FFO")	6,233	5,434	12,136	10,999
FFO per Unit (diluted)	0.297	0.277	0.594	0.561
Adjustments to arrive at AFFO
Accretion of mark-to-market adjustments on mortgage payable	(258)	(258)	(515)	(515)
Capital Expenditure Reserves	(507)	(460)	(1,000)	(912)
AFFO	5,468	4,716	10,621	9,572
AFFO per Unit (diluted)	0.260	0.240	0.520	0.488

Calculation of Other Real Estate Industry Metrics

NOI and NOI Margin

($000s)	For the three months ended Jun. 30, 2023	For the three months ended Jun. 30, 2022	For the six months ended Jun. 30, 2023	For the six months ended Jun. 30, 2022
Rental revenue and related income	17,379	14,363	34,137	28,056
Property operating expenses	5,801	4,903	11,441	9,338
NOI	11,578	9,460	22,696	18,718
NOI Margin	66.6 %	65.9 %	66.5 %	66.7 %

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.

Second Quarter 2023 Results Conference Call and Webcast

DATE:	Wednesday, August 9, 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/3JIsURh  (Click the URL to join the conference call by phone)
CONFERENCE ID:	23935319
LIVE WEBCAST:	https://app.webinar.net/M0lEPexQvNx

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]