Flagship Communities Real Estate Investment Trust Announces Third Quarter 2021 Results

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TORONTO, Nov. 10, 2021 /CNW/ - Flagship Communities Real Estate Investment Trust (TSX: MHC.U) ("Flagship REIT" or the "REIT") today released its third quarter 2021 results for the three and nine months ended September 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 Third Quarter 2021 Results:

Financial Highlights

• Revenue was $11.4 million, approximately $2.3 million higher than the forecast due mainly to the acquisitions completed since the REIT's IPO
• Same Community Revenue was $9.2 million, a slight increase compared to the forecast
• Net Operating Income ("NOI", see "Non-IFRS Financial Measures" below) was $7.6 million, which is approximately $1.7 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 66.6% which exceeded the forecast of 64.5%
• Same Community Occupancy (see "Non-IFRS Financial Measures" below) of 80.8% increased by 1.6% as of September 30, 2021, compared to December 31, 2020
• Rent collections for the three months ended were 99.2%, which was a slight increase quarter-over-quarter and consistent with prior periods

Operating Highlights

• Entered seventh operating market during the quarter with a $16.3 million acquisition in Illinois
• Subsequent to quarter-end, acquired two RV Resort communities, located within the REIT's core markets of Northern Kentucky and Central Ohio

Capital Markets Highlights

• Closed on 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; As of September 30, 2021, the REIT had a total weighted average interest rate of 3.44% (100% fixed rate) and a total weighted average term to maturity of 10.6 years
• Subsequent to quarter-end Flagship REIT's Board of Trustees approved a 5% increase to its monthly cash distribution to unitholders to $0.0446 per REIT unit or $0.5355 per REIT unit on an annual basis payable on or about December 15, 2021 to unitholders of record as of the close of business on November 30, 2021.

"We continued to demonstrate our capabilities as strong operators with the ability to apply our business model into new U.S. states with an acquisition in Illinois, our seventh operating market during the third quarter," said Kurt Keeney, President and Chief Executive Officer. "Our operating success translated into a solid financial performance for the quarter, which enabled us to announce a 5% increase to our monthly cash distribution to unitholders subsequent to quarter-end."

($000s except per share amounts)	For the three months ended September 30, 2021
	Actual Results	Forecast	Variance
Revenue, Total Portfolio	11,399	9,068	2,331
Revenue, Same Community^1 Properties	9,218	9,068	150
Revenue, acquisitions	2,181	-	2,181
Net Income and comprehensive income	1,870	2,062	(192)
NOI^1, Total Portfolio	7,592	5,852	1,740
NOI^1, Same Community^1 properties	6,105	5,852	253
NOI^1, Acquisitions	1,487	-	1,487
NOI Margin^1, total portfolio	66.6%	64.5%	2.1%
NOI Margin^1, Same Community^1 properties	66.2%	64.5%	1.7%
NOI Margin^1, Acquisitions	68.2%	-	68.2%
FFO^1	4,403	2,789	1,614
FFO Per Unit^1(excluding over allotment - IPO)	N/A	0.238	N/A
FFO Per Unit^1(including over allotment - IPO)	0.257	0.220	0.037
AFFO^1	3,742	2,319	1,423
AFFO Per Unit^1(excluding over allotment - IPO)	N/A	0.198	N/A
AFFO Per Unit^1(including over allotment - IPO)	0.218	0.183	0.035
AFFO Payout Ratio^1 (excluding over allotment - IPO)	N/A	64.4%	N/A
AFFO Payout Ratio^1 (including over allotment - IPO)	58.5%	69.6%	(11.1%)
^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.

Financial Performance Overview

Revenue of $11.4 million during the third quarter 2021, was approximately $2.3 million higher than the forecast, primarily due to the acquisitions completed since the REIT's IPO. NOI and NOI Margin for the third quarter 2021 was $7.6 million and 66.6% respectively, which is $1.7 million and 2.1% 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 $3.7 million and $0.218 per unit respectively, both of which exceeded the forecast by 61.4% and 19% during the third quarter 2021.

Net Income and comprehensive income was $1.9 million, which is approximately $0.2 million less than the forecast as a result of the fair value loss on B units which was slightly offset by the fair value gain on investment properties as well as other variances.

Same Community Occupancy of 80.8% increased by 1.6% as of September 30, 2021 compared to December 31, 2020. The Same Community Occupancy rate remained steady primarily due to the affordability of MHCs, the high level of home ownership within Flagship REIT's communities and in part, by rising housing prices in the REIT's core markets as well as the ongoing COVID-19 pandemic. Unlike multi-family apartments, manufactured homes 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 third quarter 2021 were 99.2%, which was a slight increase quarter-over-quarter and consistent with prior periods, further demonstrating the strength and predictability of the MHC sector.

As of September 30, 2021, Flagship REIT's total cash and cash equivalents were $27.7 million with no near-term debt obligations. 

Operations Overview

Following the completion of the previously-announced acquisition of two MHCs comprising 677 lots located in Indiana and Missouri early in the third quarter 2021, Flagship REIT completed an acquisition in Illinois for approximately $16.3 million in August 2021. Located in Springfield, the state capital of Illinois, Woodland Acres Pointe is 94% leased and is expected to be immediately accretive to the REIT's AFFO on a per unit basis.

Woodland Acres Pointe adheres to Flagship REIT's disciplined growth criteria for acquisitions. The community is in close proximity to major employers and shopping, including a Walmart Supercenter. The state government is the area's largest employer along with Springfield Public Schools, City of Springfield, University of Illinois Springfield as well as many private companies. Recreational areas include the beautiful Lake Springfield and acres of farmlands and forests. The 51-acre Woodland Acres Pointe community is surrounded by a historic city center that includes the State Capitol, Abraham Lincoln's home and presidential library and museum.

Subsequent to quarter-end, Flagship REIT continued to grow its existing operating footprint in Northern Kentucky and Central Ohio with the acquisition of two RV Resort communities, which are both expected to be immediately accretive to the REIT's AFFO on a per unit basis with additional above market growth over time. 

Glacier Hill Lakes RV Resort is located along I-75 in Wapakoneta between Dayton and Toledo, Ohio. It is a 70-acre resort, founded in 1974, which includes 368 lots loaded with lakes, a swimming pool and splash park, playgrounds, volleyball courts, picnic shelters and basketball courts. The community has a reputation as being one of the most family friendly, cleanest and scenic RV resort/campgrounds throughout Ohio.

Oak Creek RV Resort is a family-oriented RV resort that has been in existence for 51 years, includes 99 lots and is located just 15 minutes from the Greater Cincinnati Northern Kentucky International Airport (CVG) and minutes from I-75 in Northern Kentucky. Amenities include a swimming pool, basketball courts, playground and music pavilion. All lots have water, electric and Internet access; within a lovely, wooded setting. The community is near terrific family fun locations including Big Bone State Park, The Arc Encounter, Creation Museum, Kentucky Speedway, Paul Brown Stadium (Cincinnati Bengals) and the Great American Ballpark (Cincinnati Reds). 

As of September 30, 2021, the REIT had 58 MHCs and 9,904 manufactured housing lots. The table below provides a summary of Flagship REIT's portfolio:

MHC Portfolio as of September 30, 2021

Total MHCs	(#)	58
Total Manufactured Housing Lots	(#)	9,904
Total Lot Occupancy	(%)	81.9
Total Lot Average Monthly Revenue	(US$)	365

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 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 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 September 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; the REIT's intention to continue to expand, including on a clustered basis and newly-entered geographies, and to shrink its rental fleet; macro characteristics and trends in the United States real estate and housing industry, as well as the manufactured housing communities ("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; 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 and in the Annual MD&A, 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 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.

Third Quarter 2021 Results Conference Call and Webcast

DATE:	Wednesday, November 11, 2021
TIME:	9:15 a.m. ET
DIAL-IN NUMBER:	416-764-8650 or 1-888-664-6383
CONFERENCE ID:	68972799
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, Illinois, 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]