FLAGSHIP COMMUNITIES REAL ESTATE INVESTMENT TRUST ANNOUNCES SECOND QUARTER RESULTS
/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES./
TORONTO, Aug. 10, 2022 /CNW/ - Flagship Communities Real Estate Investment Trust ("Flagship" or the "REIT") (TSX: MHC.U) (TSX: MHC.UN) today released its results for the three and six months ended June 30, 2022 ("Q2"). 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.
Summary of Second Quarter 2022 Results:
Quarterly Financial Highlights
- Revenue was $14.4 million, approximately $4.5 million higher than Q2 2021
- Same Community Revenue[1] was $10.1 million, an increase of $0.7 million from Q2 2021
- Net Income and Comprehensive Income was $26.0 million, a $28.0 million increase from Q2 2021
- Net Operating Income ("NOI") was $9.5 million, an increase of $3.0 million from Q2 2021
- Same Community NOI1 was $6.7 million, an increase of $0.5 million from Q2 2021
- NOI Margin1 increased to 65.9%, compared to 65.4% for Q2 2021
- Funds from Operations2 ("FFO") were $5.4 million or $0.277 per unit, compared to $3.3 million and $0.255 per unit in Q2 2021
- Adjusted Funds from Operations2 ("AFFO") were $4.7 million or $0.240 per unit, compared to $2.7 million and $0.210 per unit in Q2 2021
- Same Community Occupancy1 was 82.4% as of June 30, 2022, compared to 81.3% as of March 31, 2022
- Rent Collections1 for the three months ended June 30, 2022, were 98.2%, which was a slight decrease from 98.8% for the three months ended June 30, 2021
Year-to-date Financial Highlights
- Revenue was $28.1 million, approximately $8.6 million higher than the six months ended June 30, 2021
- Same Community Revenue1 was $20.1 million, an increase of $1.3 million from the six months ended June 30, 2021
- Net Income and Comprehensive Income was $28.5 million, a $23.8 million increase from the six months ended June 30, 2021
- NOI was $18.8, an increase of $5.8 million from the six months ended June 30, 2021
- Same Community NOI1 was $13.5 million, an increase of $0.9 million from the six months ended June 30, 2021
- NOI Margin1 increased to 66.7%, compared to 66.1% for the six months ended June 30, 2021
- FFO2 were $11.0 million or $0.561 per unit for the six months ended June 30, 2022, compared to $6.8 million and $0.528 per unit for the six months ended June 30, 2021
- AFFO2 were $9.6 million or $0.488 per unit for the six months ended June 30, 2022, compared to $5.8 million and $0.446 per unit for the six months ended June 30, 2021
- Rent Collections1 for the six months ended June 30, 2022 was 98.6%, which is slightly down from 99.2% for the six months ended June 30, 2021.
"Since inception, we have applied a strategy of growing our portfolio of high-quality MHCs and operating them to a high standard that increases home ownership in our communities and generates long-term reliable cash flow. Our second quarter and year-to-date results prove that strategy is effective," said Kurt Keeney, President and CEO of the REIT. "We have several consolidation opportunities under consideration in the fragmented MHC market to build on this success."
Financial Summary
($000s except per share amounts) |
||||||
For the three |
For the three months ended June 30, 2021 |
Variance |
For the six months ended June 30, 2022 |
For the six months ended June 30, 2021 |
Variance |
|
Revenue, Total Portfolio |
14,363 |
9,835 |
4,528 |
28,056 |
19,484 |
8,572 |
Revenue, Same Community1 |
10,085 |
9,381 |
703 |
20,088 |
18,836 |
1,252 |
Revenue, Acquisitions1 |
4,278 |
454 |
3,825 |
7,968 |
648 |
7,320 |
Net Income and Comprehensive Income, Total Portfolio |
26,024 |
(1,945) |
27,969 |
28,456 |
4,686 |
23,770 |
NOI, Total Portfolio |
9,460 |
6,430 |
3,030 |
18,718 |
12,870 |
5,848 |
NOI, Same Community1 |
6,723 |
6,199 |
524 |
13,506 |
12,642 |
863 |
NOI, Acquisitions1 |
2,737 |
231 |
2,506 |
5,212 |
228 |
4,985 |
NOI Margin1, Total Portfolio |
65.9 % |
65.4 % |
0.5 % |
66.7 % |
66.1 % |
0.7 % |
NOI Margin1, Same Community1 |
66.7 % |
66.1 % |
0.5 % |
67.2 % |
67.1 % |
0.1 % |
NOI Margin1, Acquisitions1 |
64.0 % |
50.9 % |
13.1 % |
65.4 % |
35.2 % |
30.3 % |
FFO2 |
5,434 |
3,342 |
2,092 |
10,999 |
6,840 |
4,159 |
FFO Per Unit2 |
0.277 |
0.255 |
0.022 |
0.561 |
0.528 |
0.033 |
AFFO2 |
4,716 |
2,754 |
1,962 |
9,572 |
5,782 |
3,790 |
AFFO Per Unit2 |
0.240 |
0.210 |
0.030 |
0.488 |
0.446 |
0.042 |
AFFO Payout Ratio2 |
55.7 % |
60.7 % |
-5.0 % |
54.8 % |
57.1 % |
-2.3 % |
1. See "Other Real Estate Industry Metrics" for more information. 2. A non-IFRS financial measure. See "Non-IFRS Financial Measures" for more information. |
"As well as contributions from acquisitions, the results show our progress at improving Same Community performance," added Eddie Carlisle, CFO of the REIT. "This includes growing Same Community Occupancy, applying prudent rent increases and achieving cost containment and labor efficiencies."
Financial Performance Overview
Revenue in the second quarter of 2022 and for the six months ended June 30, 2022 were $14.4 million and $28.1 million, approximately $4.5 million and $8.6 million higher compared to the same periods in the prior year, respectively, primarily due to acquisitions, lot rent increases, and occupancy increases across the portfolio.
Net Income and Comprehensive Income in the second quarter of 2022 and for the six months ended June 30, 2022 were $26.0 million and $28.5 million, a $28.0 million and $23.8 million increase compared to the same periods in the prior year, respectively, primarily as a result of the fair value gain on B-Units for the three months ended June 30, 2022 being significantly larger than in the same period in 2021.
NOI and NOI Margin for the second quarter of 2022 were $9.5 million and 65.9%, respectively, which is $3.0 million and 0.5% higher than the second quarter of 2021. NOI and NOI Margin for the six months ended June 30, 2022 were $18.7 million and 66.7%, respectively, which is $5.8 million and 0.6% higher than the six months ended June 30, 2021. These increases were primarily driven by the REIT's accretive acquisition strategy during 2021, as well as lot rent growth and occupancy growth.
AFFO and AFFO per Unit for the second quarter of 2022 were $4.7 million and $0.240 per unit, a 71.2% and 14.3% increase, respectively, from the second quarter of 2021. AFFO and AFFO per Unit for the six months ended June 30, 2022 were 9.6 million and $0.488, a 65.5% and 9.4% increase, respectively, from the six months ended June 30, 2021. These increases were primarily driven by the REIT's accretive acquisition strategy during 2021 and continued Same Community NOI growth.
Same Community Revenues in Q2 2022 and for the six months ended June 30, 2022 exceeded Q2 2021 and the six months ended June 30, 2021 by $0.7 million and $1.3 million, respectively. These increases were driven by lot rent increases implemented during the period, occupancy growth throughout the year, and increases in utility revenues.
Same Community Occupancy of 82.4% increased by 1.1% as of June 30, 2022, compared to March 31, 2022. The consistent and growing occupancy rate reflects the REIT's commitment to resident satisfaction and ensuring its communities are desirable locations.
Rent Collections for Q2 2022 were 98.2%, a slight decrease from 98.8% in Q2 2021.
On April 13, 2022, the REIT borrowed $18.0 million, for which one MHC was the collateral. The interest rate on the note is 3.80%, fixed for 20 years, with the first 60 monthly payments being interest only. These funds were used to fund acquisitions and for general business purposes.
On May 17, 2022, the REIT filed a supplement to its base shelf prospectus, dated May 7, 2021, and entered into an equity distribution agreement for the purpose of completing an at-the-market offering (the "ATM Offering"). Pursuant to the ATM Offering, the REIT may issue Units, from time to time, up to an aggregate amount of $50 million. As of June 30, 2022, the REIT has not issued any Units under the ATM Offering.
On June 30, 2022, the REIT borrowed $14.4 million as a supplemental borrowing on its Fannie Mae Credit Facility for which ten communities are the collateral. The interest rate on this note is 5.79% for 12 years with all payments being interest only for the full term. These funds will be used to fund future acquisitions and for general business purposes.
On July 7, 2022, subsequent to quarter end, the REIT borrowed $10.7 million from a life insurance lender, for which one MHC was the collateral. The interest rate on the note is 4.98% for 20 years with the first 60 monthly payments being interest only. These funds will be used to fund future acquisitions and for general business purposes.
As of June 30, 2022, the REIT's total cash and cash equivalents were $4.0 million with no near-term debt obligations.
Operations Overview
On April 29, 2022, the REIT acquired an MHC in Riverton Illinois which included 103 lots and 74 rental homes for $6.3 million. The community was 89% occupied as of time of the acquisition and is the REITs second community in Illinois.
On May 18, 2022, the REIT also, acquired two MHCs in Florence Kentucky which included 345 lots for $22.5 million. The community was 70% occupied as of time of the acquisition and further increases the REIT concentration in core states which enhances efficiencies and achieves economies of scale.
On June 28, the REIT received the Kentucky Manufactured Housing Institute's (KMHI) highest award for Community of the Year for Suburban Pointe in Lexington, Kentucky.
As at June 30, 2022, the REIT owned a 100% interest in a portfolio of 66 MHCs with 11,913 lots. The table below provides a summary of the REIT's portfolio as of June 30, 2022, compared to June 30, 2021:
As of June 30, 2022 |
As of June 30, 2021 |
||
Total communities |
(#) |
66 |
55 |
Total lots |
(#) |
11,913 |
8,960 |
Weighted Average Lot Rent1 |
(US$) |
384 |
359 |
Occupancy |
( %) |
83.3 |
80.7 |
1. See "Other Real Estate Industry Metrics" below |
Outlook
The 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 the REIT's vertically integrated management platform.
The REIT believes the MHC sector to be a prudent investment strategy that will create long-term value for the following 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 and the MHC industry specifically offer investors significant upside potential. These characteristics and trends include:
- Increasing household formations;
- Lower housing affordability;
- Declining single-family residential homeownership rates;
- Lack of new manufactured housing supply.
- The REIT believes it is well-positioned to benefit from these residential real estate and housing industry dynamics.
Non-IFRS Financial Measures
The REIT uses certain non-IFRS financial measures (including ratios), including FFO, FFO Per Unit, AFFO, AFFO Per Unit, AFFO Payout Ratio 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. 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 Net Income and Comprehensive 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 of the REIT's subsidiary, Flagship Operating, LLC ("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"). FFO per Unit (diluted) is defined as FFO for the applicable period divided by the diluted weighted average Unit count (including Class B Units and Deferred Trust Units ("DTUs")) during the period. Refer to section "Reconciliation of Non-IFRS Financial Measures – FFO, FFO per Unit, AFFO and AFFO per Unit" for a reconciliation of FFO to AFFO to Net Income and Comprehensive Income.
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. This may differ from other issuers' methods and, accordingly, may not be comparable to AFFO reported by other issuers. Refer to section "Reconciliation of Non-IFRS Financial Measures – FFO, FFO per Unit, AFFO and AFFO per Unit" for a reconciliation of AFFO to 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 and DTUs) during the period.
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.
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 June 30, 2022 |
For the three months ended June 30, 2021 |
For the six months ended June 30, 2022 |
For the six months ended June 30, 2021 |
Net income and comprehensive income |
26,024 |
(1,945) |
28,456 |
4,686 |
Adjustments to arrive at FFO
|
||||
Depreciation
|
66
|
41
|
133
|
74
|
Fair value adjustments-Class B units
|
(24,821)
|
12,455
|
(21,637)
|
14,737
|
Distributions on Class B units
|
732
|
692
|
1,462
|
1,385
|
Fair value adjustment – investment properties
|
3,512
|
(8,085)
|
2,662
|
(14,278)
|
Fair value adjustment – unit based compensation
|
(79)
|
(77)
|
||
Transaction costs |
- |
184 |
- |
236 |
FFO |
5,434 |
3,342 |
10,999 |
6,840 |
FFO per Unit (diluted) |
0.277 |
0.255 |
0.561 |
0.528 |
Adjustments to arrive at AFFO
|
||||
Accretion of mark-to-market adjustments on mortgage payable
|
(258)
|
(258)
|
(515)
|
(515)
|
Capital Expenditure Reserves |
(460) |
(330) |
(912) |
(543) |
AFFO |
4,716 |
2,754 |
9,572 |
5,782 |
AFFO per Unit (diluted) |
0.240 |
0.210 |
0.488 |
0.466 |
Calculation of Other Real Estate Industry Metrics
NOI and NOI Margin
($000s) |
For the three months ended June 30, 2022 |
For the three months ended June 30, 2021 |
For the six months ended June 30, 2022 |
For the six months ended June 30, 2021 |
Rental revenue and related income
|
14,363
|
9,835
|
28,056
|
19,484
|
Property operating expenses |
4,903 |
3,405 |
9,338 |
6,614 |
NOI |
9,460 |
6,430 |
18,718 |
12,870 |
NOI Margin |
65.9 % |
65.4 % |
66.7 % |
66.1 % |
Forward-Looking Statements
This press release contains statements that include forward-looking information within the meaning of Canadian securities laws. These forward-looking statements reflect the current expectations of the REIT regarding future events, including statements under "Outlook", as well as plans for acquisitions and the expected results therefrom, and the potential issuance and sale of Units pursuant to the ATM Offering. In some cases, forward-looking statements can be identified by terms such as "may", "will", "could", "occur", "expect", "anticipate", "believe", "intend", "estimate", "target", "project", "predict", "forecast", "continue", or the negative thereof or other similar expressions concerning matters that are not historical facts. Material factors and assumptions used by management of the REIT to develop the forward-looking information include, but are not limited to, the REIT having sufficient cash to pay its distributions and that the items listed under "Outlook" continue to be true. While management considers these assumptions to be reasonable based on currently available information, they may prove to be incorrect.
Although management believes the expectations reflected in such forward-looking statements are reasonable and represent the REIT's internal expectations and beliefs at this time, such statements involve known and unknown risks and uncertainties and may not prove to be accurate and certain objectives and strategic goals may not be achieved. A variety of factors, many of which are beyond the REIT's control, could cause actual results in future periods to differ materially from current expectations of events or results expressed or implied by such forward-looking statements, such as the risks identified in the REIT's annual information form and management's discussion and analysis ("MD&A") for the year ended December 31, 2021 or any subsequently filed interim MD&A, in each case available under the REIT's profile at www.sedar.com, including under the heading "Risk Factors" or "Risk and Uncertainties" therein. Readers are cautioned against placing undue reliance on forward-looking statements. Except as required by applicable Canadian securities laws, the REIT undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made.
Second Quarter 2022 Results Conference Call and Webcast
DATE: |
Thursday, August 11, 2022 |
TIME: |
8:30 a.m. ET |
DIAL-IN NUMBER: |
416-764-8650 or 1-888-664-6383 |
CONFERENCE ID: |
98409770 |
LIVE WEBCAST: |
https://produceredition.webcasts.com/starthere.jsp?ei=1518374&tp_key=9611ca9231 |
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 MHCs located in Kentucky, Indiana, Ohio, Tennessee, Arkansas, Illinois and Missouri, including a fleet of manufactured homes for lease to residents of such housing communities.
__________________________ |
|
1 |
See "Other Real Estate Industry Metrics" for more information. |
2 |
A non-IFRS financial measure. See "Non-IFRS Financial Measures" for more information. |
SOURCE Flagship Communities Real Estate Investment Trust
Eddie Carlisle, Chief Financial Officer, Flagship Communities Real Estate Investment Trust, Tel: +1 (859) 568-3390
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