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TORONTO, Nov. 13, 2024 (GLOBE NEWSWIRE) -- Flagship Communities Real Estate Investment Trust ("Flagship” or the "REIT”) (TSX: MHC.U; MHC.UN) today released its third quarter 2024 results. The financial results of the REIT are presented in accordance with International Financial Reporting Standards ("IFRS”) as issued by the International Accounting Standards Board (the "IASB”). Results are shown in U.S. dollars, unless otherwise noted.
Third Quarter 2024 Results:
- Rental revenue for the three months ended September 30, 2024 was $23.2 million, an increase of 27.9% compared to $18.2 million for the three months ended September 30, 2023
- Same Community Revenue1 for the three months ended September 30, 2024 was $19.7 million, up 12.7% compared to $17.5 million for the three months ended September 30, 2023
- Net income and comprehensive income for the three months ended September 30, 2024 was $23.8 million compared to $29.0 million for the three months ended September 30, 2023, a decrease of $(5.2) million
- Net Operating Income ("NOI”) for the three months ended September 30, 2024 was $15.1 million, up 27.7% compared to $11.8 million for the three months ended September 30, 2023
- Same Community NOI1 for the three months ended September 30, 2024 was $13.0 million, an increase of 13.7%, compared to $11.4 million for the three months ended September 30, 2023
- NOI Margin1 for the three months ended September 30, 2024 was 65.0% compared to 65.2% for the three months ended September 30, 2023
- Same Community NOI Margin1 for the three months ended September 30, 2024 was 66.0% compared to 65.4% for the three months ended September 30, 2023
- Funds from operations ("FFO”) per unit (diluted)2 for the three months ended September 30, 2024 was $0.352 compared to $0.297 for the three months ended September 30, 2023 which was an increase of $0.055 per unit, or 18.5%
- FFO adjusted per unit (diluted)2 for the three months ended September 30, 2024 was $0.318 compared to $0.297 for the three months ended September 30, 2023 which was an increase of $0.021 per unit, or 7.1%
- Adjusted funds from operations ("AFFO”) per unit (diluted)2 for the three months ended September 30, 2024 was $0.314 compared to $0.260 for the three months ended September 30, 2023 which was an increase of $0.054 per unit, or 20.7%
- AFFO adjusted per unit (diluted)2 for the three months ended September 30, 2024 was $0.280 compared to $0.260 for the three months ended September 30, 2023 which was an increase of $0.020 per unit, or 7.7%
- Rent Collections1 for the three months ended September 30, 2024 was 98.7%, which was a decrease of (0.6)% when compared to the three months ended September 30, 2023
- Subsequent to quarter-end, Flagship increased its monthly cash distribution to unitholders for the fourth consecutive year; the monthly cash distribution to unitholders increased by approximately 5.0% to $0.0517 per REIT unit or $0.62 per REIT unit on an annualized basis
- NAV1 and NAV per Unit1 as at September 30, 2024 was $648.2 million and $25.83, respectively, compared to $525.1 million and $24.84 as at December 31, 2023, respectively
- Debt to Gross Book Value1 as at September 30, 2024 was 38.7% compared to 40.3% as at December 31, 2023
- Total portfolio occupancy was 84.4% as at September 30, 2024, a 0.9% increase from September 30, 2023
- Same Community1 Occupancy was 85.7% as at September 30, 2024, a 1.1% increase from September 30, 2023
2See "Non-IFRS Financial Measures”
"Our business continues to perform well with notable improvements in Rental revenue, NOI and Same Community metrics compared to last year,” said Kurt Keeney, President and CEO. "On the heels of our strong operating and financial results, our Board approved a 5% increase in our monthly cash distribution to unitholders, the fourth consecutive year we have raised cash distributions. We also look forward to continuing the integration process from the acquisitions we made earlier this year and advancing our organic lot expansion strategy.”
Financial Summary
| ($000s except per unit amounts) | ||||||||||||
| For the three
months ended Sept. 30, 2024 | For the three months ended Sept. 30, 2023 | Variance
| For the nine months ended Sept. 30, 2024 | For the nine months ended Sept. 30, 2023 | Variance
| |||||||
| Rental revenue and related income | 23,228 | 18,154 | 5,074 | 64,380 | 52,291 | 12,089 | ||||||
| Same Community Revenue1 | 19,723 | 17,505 | 2,218 | 57,440 | 51,313 | 6,127 | ||||||
| Acquisitions Revenue1 | 3,505 | 649 | 2,856 | 6,940 | 978 | 5,962 | ||||||
| Net income and comprehensive income | 23,787 | 28,980 | (5,193 | ) | 78,367 | 66,586 | 11,781 | |||||
| NOI, total portfolio | 15,102 | 11,830 | 3,272 | 42,499 | 34,478 | 8,021 | ||||||
| Same Community NOI1 | 13,012 | 11,446 | 1,566 | 38,253 | 33,956 | 4,297 | ||||||
| Acquisitions NOI1 | 2,090 | 384 | 1,706 | 4,246 | 522 | 3,724 | ||||||
| NOI Margin1, total portfolio | 65.0% | 65.2% | (0.2)% | 66.0% | 65.9% | 0.1% | ||||||
| Same Community NOI Margin1 | 66.0% | 65.4% | 0.6% | 66.6% | 66.2% | 0.4% | ||||||
| Acquisitions NOI Margin1 | 59.6% | 59.1% | 0.5% | 61.2% | 53.4% | 7.8% | ||||||
| FFO2 | 8,830 | 6,267 | 2,563 | 21,122 | 18,403 | 2,719 | ||||||
| FFO per unit2 | 0.352 | 0.297 | 0.055 | 0.902 | 0.891 | 0.011 | ||||||
| FFO adjusted2 | 7,966 | 6,267 | 1,699 | 22,381 | 18,403 | 3,978 | ||||||
| FFO adjusted per unit2 | 0.318 | 0.297 | 0.021 | 0.955 | 0.891 | 0.064 | ||||||
| AFFO2 | 7,882 | 5,489 | 2,393 | 18,407 | 16,111 | 2,296 | ||||||
| AFFO per unit2 | 0.314 | 0.260 | 0.054 | 0.786 | 0.780 | 0.006 | ||||||
| AFFO Payout Ratio2 | 46.8% | 53.9% | (7.1)% | 55.9% | 53.7% | 2.2% | ||||||
| AFFO adjusted2 | 7,018 | 5,489 | 1,529 | 19,666 | 16,111 | 3,555 | ||||||
| AFFO adjusted per unit2 | 0.280 | 0.260 | 0.020 | 0.839 | 0.780 | 0.059 | ||||||
| AFFO adjusted Payout Ratio2 | 52.5% | 53.9% | (1.4)% | 52.3% | 53.7% | (1.4)% | ||||||
| Weighted average units (diluted) | 25,083,321 | 21,132,226 | 3,951,095 | 23,427,382 | 20,656,025 | 2,771,357 | ||||||
| ||||||||||||
Financial Overview
Rental revenue and related income in the third quarter of 2024 was $23.2 million, up 27.9% compared to the same period last year. This increase was primarily driven by Acquisitions as well as lot rent increases and occupancy increases across the portfolio.
Same Community Revenues for the third quarter of 2024 were $19.7 million, approximately $2.2 million higher than the same period last year. This increase was a result of increasing monthly lot rent year over year, growth in Same Community Occupancy, and increased utility and ancillary revenues.
Net income and comprehensive income for the three months ended September 30, 2024 was $23.8 million, which was $(5.2) million less than the same period last year, as a result of the fair value adjustments on investment properties and Class B Units of Flagship Operating, LLC ("Class B Units”) being $7.5 million less than in the same period in 2023.
NOI and NOI Margin for the third quarter of 2024 were $15.1 million and 65.0%, respectively, compared to $11.8 million and 65.2% during the third quarter of 2023. Same Community NOI Margin for the third quarter ended September 30, 2024 was 66.0%, which was an increase of 0.6% over the same period last year.
Same Community Occupancy was 85.7% as at September 30, 2024. Two communities completed an expansion that resulted in an addition of 81 and 31 lots, respectively, with capacity for more lots as opportunities allow. The addition of these 112 lots decreased Same Community Occupancy by approximately (0.8)%, as at September 30, 2024, but the REIT expects to have these lots occupied, and to add additional lots to meet demand, in the normal course of business.
Adjusted for the impact of this expansion, total portfolio occupancy and Same Community Occupancy would have been 85.0% and 86.5% as at September 30, 2024.
AFFO for the third quarter of 2024 was $7.9 million, an increase of 43.6% from the third quarter of 2023. AFFO per unit for the three months ended September 30, 2024 was $0.314, an increase of 20.7% from the same period last year.
AFFO adjusted, which adjusts for transactions that are not considered recurring measures of economic earnings with the goal of presenting AFFO in a normalized manner, was $7.0 million for the third quarter of 2024, a 27.9% increase compared to the same period last year. AFFO adjusted per unit for the third quarter of 2024 was $0.280, a 7.7% increase compared to the same period in 2023.
Rent Collections for the third quarter of 2024 remained stable at 98.7%.
As at September 30, 2024 the REIT's Weighted Average Mortgage and Note Interest Rate (see "Other Real Estate Industry Metrics” for more information) was 4.41%. The REIT's Weighted Average Mortgage and Note Term (see "Other Real Estate Industry Metrics” for more information) to maturity was 9.2 years. Flagship has no substantial debt maturities until 2030.
Flagship's Liquidity (see "Other Real Estate Industry Metrics” for more information) as at September 30, 2024 was approximately $21.2 million consisting of cash, cash equivalents, and available capacity on lines of credit.
Subsequent to quarter-end, Flagship increased its monthly cash distribution to unitholders for the fourth consecutive year. The monthly cash distribution to unitholders increased by approximately 5.0% to $0.0517 per REIT unit or $0.62 per REIT unit on an annualized basis.
Operations Overview
The integration process of the seven new Manufactured Housing Communities ("MHC”) Flagship acquired in Tennessee and West Virginia earlier in 2024, have exceeded management's expectations. Flagship also continues to advance its lot expansion strategy. The REIT has the potential to add additional housing opportunities within certain existing communities for a modest capital investment. During the second and third quarters, Flagship added an additional 112 lots to its portfolio and has the ability to add 638 additional lots on approximately 300 acres over the next few years.
As at September 30, 2024, the REIT owned a 100% interest in a portfolio of 80 MHCs with 14,668 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 September 30, 2024, compared to December 31, 2023:
| ($000s except per unit and Weighted Average Lot Rent amounts) | As at September 30, 2024 | As at December 31, 2023 | |
| Total communities | (#) | 82 | 75 |
| Total lots | (#) | 15,138 | 12,743 |
| Weighted Average Lot Rent1 | (US$) | 447 | 418 |
| Total portfolio occupancy | (%) | 84.4 | 83.4 |
| NAV1 | (US$) | 648,230 | 525,116 |
| NAV per unit1 | (US$) | 25.83 | 24.84 |
| Debt to Gross Book Value1 | (%) | 38.7 | 40.3 |
| Weighted Average Mortgage and Note Interest Rate1 | (%) | 4.41 | 4.08 |
| Weighted Average Mortgage and Note Term1 | (Years) | 9.2 | 10.3 |
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Outlook
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. Additionally, the lack of supply of new manufactured housing communities given the various layers of regulatory restrictions, competing land uses and scarcity of land zoned 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
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, FFO adjusted, FFO adjusted per unit, AFFO, AFFO per unit, AFFO adjusted and AFFO adjusted per unit” for a reconciliation of FFO to FFO adjusted 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 Restricted Units ("RUs”) and vested Deferred Trust Units ("DTUs”)) during the period.
"FFO adjusted” is defined as FFO adjusted for non-real estate industry specific operating transactions. FFO adjusted presents FFO in a normalized manner that is substantially in accordance with REALPAC's recommendations. FFO adjusted may, as transactions occur, include adjustments that were not included in the definition of FFO adjusted in a previous period but are included in the current period to present FFO in a normalized manner that is substantially in accordance with REALPAC's recommendations. For the three and nine months ended September 30, 2024 adjustments include mortgages payable settlement expense, which is comprised of prepayment penalties, defeasance, amortization of financing costs, and other costs associated with the refinance and payoff of certain mortgages payable prior to maturity. Adjustments also include insurance proceeds related to covered damage of investment property which was not an adjustment included in FFO adjusted in the previous period. Additionally, adjustments include non-recurring general and administrative expenses related to non-real estate industry specific operating transactions.
"FFO adjusted per unit (diluted)” is defined as FFO adjusted 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 $75 per lot per year and $1,100 per rental home per year, for the year ending December 31, 2024, ($60 per lot per year and $1,000 per rental home per year, for the year ended December 31, 2023) 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, FFO adjusted, FFO adjusted per unit, AFFO, AFFO per unit, AFFO adjusted and AFFO adjusted per unit” for a reconciliation of AFFO to AFFO adjusted 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.
"AFFO adjusted” is defined as AFFO adjusted for transactions that are not considered recurring measures of economic earnings with the goal of presenting AFFO in a normalized manner that is substantially in accordance with REALPAC's recommendations. AFFO adjusted may, as transactions occur, include adjustments that were not included in the definition of AFFO adjusted in a previous period but are included in the current period to present AFFO in a normalized manner that is substantially in accordance with REALPAC's recommendations. For the three and nine months ended September 30, 2024 adjustments include mortgages payable settlement expense, which is comprised of prepayment penalties, defeasance, amortization of financing costs, and other costs associated with the refinance and payoff of certain mortgages payable prior to maturity. Adjustments also include insurance proceeds related to covered damage of investment property which was not an adjustment included in AFFO adjusted in the previous period. Additionally, adjustments include non-recurring general and administrative expenses that are not considered recurring measures of economic earnings.
"AFFO adjusted Payout Ratio” is defined as total cash distributions of the REIT (including distributions on Class B Units) divided by AFFO adjusted.
"AFFO adjusted per unit (diluted)” is defined as AFFO adjusted 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 opera