Fourth Quarter 2023 Results:
- Rental revenue for the three months ended December 31, 2023 was $18.8 million, an increase of 19.5% compared to $15.7 million for the three months ended December 31, 2022
- Same Community Revenue1 for the three months ended December 31, 2023 was $15.7 million, up 11.8% compared to $14.0 million for the three months ended December 31, 2022
- Net (loss) and comprehensive (loss) for the three months ended December 31, 2023 was $(1.5) million compared to $(0.7) million for the three months ended December 31, 2022
- FFO per unit (diluted)2 for the three months ended December 31, 2023 was $0.294 an increase of $0.046 per Unit or 18.5%, compared to the three months ended December 31, 2022
- Adjusted Funds From Operations (“AFFO”) per unit (diluted)2 for the three months ended December 31, 2023 was $0.258 compared to $0.209 for the three months ended December 31, 2022, which was an increase of $0.049 per Unit, or 23.4%
- Net Operating Income (“NOI”) for the three months ended December 31, 2023 was $12.4 million, up 20.0% compared to $10.4 million for the three months ended December 31, 2022
- Same Community NOI1 for the three months ended December 31, 2023 was $10.7 million, an increase of 15.6%, compared to $9.2 million for the three months ended December 31, 2022
- NOI Margin1 for the three months ended December 31, 2023 was 66.3% compared to 66.0% for the three months ended December 31, 2022
- Same Community NOI Margin1 for the three months ended December 31, 2023 was 68.2%, an increase of 2.2% compared to 66.0% for the three months ended December 31, 2022
- Rent Collections1 for the three months ended December 31, 2023 was 99.6%, up from 99.5% for the three months ended December 31, 2022
- Subsequent to year-end, Flagship refinanced four mortgages payable at a lower fixed interest rate with a longer term. The cash proceeds were used to pay off one of its existing Bridge Notes; Flagship now has no substantial debt maturities until 2030
Full Year 2023 Results:
- Rental revenue for the year ended December 31, 2023 was $71.1 million, an increase of 20.8% compared to $58.8 million for the year ended December 31, 2022
- Same Community Revenue1 for the year ended December 31, 2023 was $61.4 million, up 10.5% compared to $55.6 million for the year ended December 31, 2022
- Net income and comprehensive income for the year ended December 31, 2023 was $65.1 million, a 52.5% increase from $42.7 million for the year ended December 31, 2022
- FFO per unit (diluted)2 for the year ended December 31, 2023 was $1.185, an increase of 9.7% compared to $1.080 for the year ended December 31, 2022
- AFFO per unit (diluted)2 for the year ended December 31, 2023 was $1.038, which was an increase of $0.106 per Unit or 11.4% compared to $0.932 for the year ended December 31, 2022
- NOI for the year ended December 31, 2023 was $46.9 million, an increase of 20.5% compared to $38.9 million for the year ended December 31, 2022
- Same Community NOI1 for the year ended December 31, 2023 was $40.9 million, an increase of $3.9 million or 10.6% compared to $36.9 million for the year ended December 31, 2022
- NOI Margin1 for the year ended December 31, 2023 was 66.0% compared to 66.2% for the year ended December 31, 2022
- Same Community NOI Margin1 for the year ended December 31, 2023 was 66.5%, an increase of 0.1% compared to 66.4% for the year ended December 31, 2022
- Rent Collections1 for the year ended December 31, 2023 was 99.4%, which is up from 98.7% for the year ended December 31, 2022
As at December 31, 2023
- Debt to Gross Book Value1 as at December 31, 2023 was 40.3% compared to 42.9% as at December 31, 2022
- Total portfolio occupancy was 83.6% as at December 31, 2023, a 0.5% increase compared to 83.1% as at December 31, 2022
- Same Community1 occupancy increased to 84.8% as at December 31, 2023, an increase of 1.5% compared to 83.3% as at December 31, 2022
1See “Other Real Estate Industry Metrics”
2See “Non-IFRS Financial Measures”
“2023 was a highly successful year for Flagship,” said Kurt Keeney, President and CEO. “We saw notable year-over-year increases in our key metrics including our Same Community metrics. And subsequent to year-end, we refinanced our near-term debt at a lower fixed interest rate, re-setting our maturities for another 10 years, which helps maintain Flagship’s low-cost of capital debt profile, leaving us with no substantial maturities until 2030. As we enter 2024, we remain confident in our strong business fundamentals and that manufactured homes will continue to be an affordable homeownership option for many Americans.”
Financial Summary
| ($000s except per share amounts) | ||||||||||||
| For the three months ended Dec. 31, 2023 | For the three months ended Dec. 31, 2022 | Variance | For the Year Ended Dec. 31, 2023 | For the Year Ended Dec. 31, 2022 | Variance | |||||||
| Rental revenue and related income | 18,761 | 15,700 | 3,061 | 71,052 | 58,798 | 12,254 | ||||||
| Same Community Revenue1 | 15,677 | 14,019 | 1,658 | 61,439 | 55,595 | 5,844 | ||||||
| Acquisitions Revenue1 | 3,084 | 1,681 | 1,403 | 9,613 | 3,203 | 6,410 | ||||||
| Net (loss) income and comprehensive (loss) income | (1,488 | ) | (684 | ) | (804 | ) | 65,098 | 42,682 | 22,416 | |||
| NOI, total portfolio | 12,439 | 10,367 | 2,072 | 46,917 | 38,933 | 7,984 | ||||||
| Same Community NOI1 | 10,691 | 9,247 | 1,444 | 40,861 | 36,933 | 3,928 | ||||||
| Acquisitions NOI1 | 1,748 | 1,120 | 628 | 6,056 | 2,000 | 4,056 | ||||||
| NOI Margin1, total portfolio | 66.3 | % | 66.0 | % | 0.3 | % | 66.0 | % | 66.2 | % | (0.2 | )% |
| Same Community NOI Margin1 | 68.2 | % | 66.0 | % | 2.2 | % | 66.5 | % | 66.4 | % | 0.1 | % |
| Acquisitions NOI Margin1 | 56.7 | % | 66.6 | % | (9.9 | )% | 63.0 | % | 62.4 | % | 0.6 | % |
| FFO2 | 6,224 | 4,865 | 1,359 | 24,627 | 21,201 | 3,426 | ||||||
| FFO Per Unit2 | 0.294 | 0.248 | 0.046 | 1.185 | 1.080 | 0.105 | ||||||
| AFFO2 | 5,450 | 4,114 | 1,336 | 21,561 | 18,302 | 3,259 | ||||||
| AFFO per Unit2 | 0.258 | 0.209 | 0.049 | 1.038 | 0.932 | 0.106 | ||||||
| AFFO Payout Ratio2 | 55.2 | % | 64.8 | % | (9.6 | )% | 54.1 | % | 57.6 | % | (3.5 | )% |
| Weighted average units (Diluted) | 21,144,151 | 19,643,642 | 1,500,509 | 20,779,060 | 19,630,160 | 1,148,900 | ||||||
| 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 2023 was $18.8 million, up 19.5% compared to the same period last year. This increase was primarily driven by lot rent increases and occupancy increases across the portfolio as well as Acquisitions. Rental revenue and related income for the year ended December 31, 2023 was $71.1 million, or a 20.8% increases compared to the prior year, driven by the same factors.
Same Community Revenues for the fourth quarter and year ended December 31, 2023 were $15.7 million and $61.4 million, respectively, exceeding those for the fourth quarter and year ended December 31, 2022 by approximately $1.7 million and $5.8 million or 11.8% and 10.5%, respectively. The increase in Same Community Revenues was a result of increasing monthly lot rent year over year, growth in Same Community Occupancy, and increased utility revenues.
Net (loss) and comprehensive (loss) for the three months ended December 31, 2023 was approximately $0.8 million more than the same period last year, as a result of the fair value loss on investment properties and Class B Units being $2.1 million more than in the same period in 2022. Net income and comprehensive income for year ended December 31, 2023 was $65.1 million, an increase of $22.4 million from the prior period as a result of the fair value gain on investment properties.
NOI and NOI Margin for the fourth quarter of 2023 were $12.4 million and 66.3%, respectively, compared to $10.4 million and 66.0% during the fourth quarter of 2022. NOI and NOI Margin for the year ended December 31, 2023 were $46.9 million and 66.0%, respectively, compared to $38.9 million and 66.2% for the year ended December 31, 2022.
Same Community NOI Margins for the fourth quarter and year ended December 31, 2023 were 68.2% and 66.5% respectively, which increased 2.2% and 0.1%, respectively, over the same periods of time last year. These increases demonstrated Flagship’s ability to develop operational efficiencies the longer communities are owned by the REIT.
Same Community Occupancy increased to 84.8% as at December 31, 2023 compared to 83.3% during the prior year, an increase of 1.5%, demonstrating Flagship’s ability to drive occupancy growth using the home ownership model.
AFFO for the fourth quarter of 2023 was $5.5 million, an increase of 32.5% from the fourth quarter of 2022. AFFO per Unit for the three months ended December 31, 2023 and 2022 was $0.258 and $0.209, respectively, resulting in an increase of 23.4%. AFFO and AFFO per Unit for the year ended December 31, 2023 were $21.6 million and $1.038, a 17.8% and 11.4% increase, respectively, compared to the year ended December 31, 2022.
Rent Collections for the fourth quarter of 2023 were 99.6%, an increase from 99.5% from the same period in 2022.
Subsequent to year-end, Flagship refinanced four mortgages payable at a lower fixed interest rate with a longer term. The REIT used the cash proceeds to pay off one of its existing Bridge Notes. For more information, please see the “Debt Financing – Proforma after Debt Refinancing” in the REIT’s Management’s Discussion & Analysis for the year-ended December 31, 2023.
The REIT’s Weighted Average Mortgage Term (see “Other Real Estate Industry Metrics” for more information) to maturity was 11.0 years as at December 31, 2023 on a pro forma basis. The REIT’s Weighted Average Mortgage Interest Rate was 4.04% as at December 31, 2023 on a pro forma basis. Flagship now has no substantial debt maturities until 2030.
Subsequent to the refinancings completed in early 2024, Flagship’s total cash and cash equivalents were approximately $20 million with an additional $10 million available on the REIT’s line of credit.
Operations Overview
Flagship continues to manage and monitor water usage in most of its MHCs. The REIT has ongoing sub-metering and water re-capture programs to help conserve water and detect leaks. Historically, sub-metering has reduced water consumption by up to 30% compared to previously un-monitored water usage. Flagship continues to implement sub-metering and water re-capture programs across most of its MHCs.
Flagship is also focused on energy conservation across its MHCs through its solar street lighting program. Three years ago, Flagship began a pilot program to test solar lighting in its communities. This past year the REIT added 1,516 new solar lights to its communities. Flagship’s goal is to transform all street lighting into a 100% solar-powered system.
As at December 31, 2023, the REIT owned a 100% interest in a portfolio of 73 MHCs with 13,310 lots as well as two recreational vehicle (“RV”) resort communities with 470 sites, The table below provides a summary of the REIT’s portfolio as of December 31, 2023, compared to December 31, 2022:
| As of December 31, 2023 | As of December 31, 2022 | |||||
| Total communities | (#) | 75 | 69 | |||
| Total lots | (#) | 13,780 | 12,601 | |||
| Weighted Average Lot Rent1 | (US$) | 414 | 388 | |||
| Occupancy | (%) | 83.6 | 83.1 | |||
| Debt to Gross Book Value1 | (%) | 40.3 | 42.9 | |||
| Weighted Average Mortgage Interest Rate1 | (%) | 4.042 | 3.78 | |||
| Weighted Average Mortgage Term1 | (Years) | 11.02 | 11.7 | |||
| 1.See “Other Real Estate Industry Metrics” | ||||||
| 2.Presented on a pro forma basis as at December 31, 2023, subsequent to the refinancings completed in early 2024 | ||||||
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 inthe 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 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 (including distributions on the Class B Units), unrealized fair value adjustments to Class B Units, unrealized fair value adjustments to investment properties, unrealized fair value adjustments to unit based compensation, 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 (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 per 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 financial metrics:
- “Acquisitions” means the REIT’s properties, excluding Same Communities (as defined below) (i.e. Acquisitions Revenue, as well as Acquisitions net operating income (“NOI”), and Acquisitions NOI Margin (as defined below)), and such measure is 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, 2022, by the REIT and such measures (i.e., Same Community Revenue as well as Same Community NOI or Same Community NOI Margin, and Same Community Occupancy) are used by management to evaluate period-over-period performance.
- “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 December 31, 2023 | For the three months ended December 31, 2022 | For the year ended December 31, 2023 | For the year ended December 31, 2022 | ||||
| Net (loss) income and comprehensive (loss) income | (1,488 | ) | (684 | ) | 65,098 | 42,682 | ||
| Adjustments to arrive at FFO | ||||||||
| Depreciation | 111 | 81 | 399 | 290 | ||||
| Gain on sale of investment properties | (50 | ) | – | (50 | ) | – | ||
| Fair value adjustments – Class B units | 5,309 | 6,838 | (1,917 | ) | (16,714 | ) | ||
| Distributions on Class B units | 811 | 756 | 3,148 | 2,950 | ||||
| Fair value adjustment – investment properties | 1,450 | (2,156 | ) | (42,045 | ) | (7,952 | ) | |
| Fair value adjustment – unit based compensation | 81 | 30 | (6 | ) | (55 | ) | ||
| Funds from Operations (“FFO”) | 6,224 | 4,865 | 24,627 | 21,201 | ||||
| FFO per Unit (diluted) | 0.294 | 0.248 | 1.185 | 1.080 | ||||
| Adjustments to arrive at AFFO | ||||||||
| Accretion of mark-to-market adjustments on mortgage payable | (257 | ) | (257 | ) | (1,029 | ) | (1,029 | ) |
| Capital Expenditure Reserves | (517 | ) | (494 | ) | (2,037 | ) | (1,870 | ) |
| AFFO | 5,450 | 4,114 | 21,561 | 18,302 | ||||
| AFFO per Unit (diluted) | 0.258 | 0.209 | 1.038 | 0.932 | ||||
Calculation of Other Real Estate Industry Metrics
NOI and NOI Margin
| ($000s) | For the three months ended December 31, 2023 | For the three months ended December 31, 2022 | For the year ended December 31, 2023 | For the year ended December 31, 2022 | ||||
| Rental revenue and related income | 18,761 | 15,700 | 71,052 | 58,798 | ||||
| Property operating expenses | 6,322 | 5,333 | 24,135 | 19,865 | ||||
| NOI | 12,439 | 10,367 | 46,917 | 38,933 | ||||
| NOI Margin | 66.3 | % | 66.0 | % | 66.0 | % | 66.2 | % |
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, objectives and creation of long-term value; the REIT’s intention to continue to expand in its existing operational footprint, increasing its presence in core markets to enhance efficiencies and achieve economies of scale, and target growth markets, the REIT’s intention to convert rental homes to tenant owned homes as opportunities allow; expected sources of funding for future acquisitions and the expected performance of 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 REIT’s distribution policy and intended sources of cash therefor; 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 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.
Fourth Quarter 2023 Results Conference Call and Webcast
| DATE: | Friday, March 15, 2024 |
| TIME: | 8:30 a.m. ET |
| JOIN BY PHONE: | https://register.vevent.com/register/BIa559b131ef4b452390f2055469abdc0b |
| (Click the URL to join the conference call by phone) | |
| Please register at least 10 minutes before the start of the call. Upon registration, an email will be sent, including dial-in details and a unique conference call access code required to join the live call. | |
| LIVE WEBCAST: | https://edge.media-server.com/mmc/p/bk7c5yws |
About Flagship Communities Real Estate Investment Trust
Flagship Communities Real Estate Investment Trust is a leading operator of affordable residential Manufactured Housing Communities primarily serving working families seeking affordable home ownership. The REIT owns and operates exceptional residential living experiences and investment opportunities in family-oriented communities in Kentucky, Indiana, Ohio, Tennessee, Arkansas, Missouri, and Illinois. To learn more about Flagship, visit www.flagshipcommunities.com.
For further information, please contact:
Eddie Carlisle, Chief Financial Officer
Flagship Communities Real Estate Investment Trust
Tel: +1 (859) 568-3390
