Flagship Communities Real Estate Investment Trust (MHCUN) Earnings Call Transcript

Good day, everyone, and thanks for joining us. You're listening to the Flagship Communities REIT call covering first-quarter 2026 results. Right now, everyone is in listen-only mode. After the presentation, there will be a short Q&A period for analysts and institutional investors. Please be aware that this call is being recorded. Kurt Keeney, Flagship's President and Chief Executive Officer, is with us today, along with Nathan Smith, Chief Investment Officer, and Eddie Carlisle, Chief Financial Officer. I'd note that remarks on this call might include forward-looking information, which by nature carries risks and uncertainties. Actual results could differ materially from the views expressed today. For more detail on those risks and uncertainties, please see the company's relevant filings on SEDAR+. Those documents can also be found on Flagship's website at flagshipcommunities.com. Flagship has also put together a corresponding PowerPoint presentation, and it encourages you to follow along during this call. With that, I'll hand things over to Kurt Keeney. Kurt?

Thank you, operator. Good morning, everyone, and thanks for being with us today. We've had a strong beginning to 2026 as we keep executing our strategy of generating growth through organic initiatives as well as disciplined expansion in our core markets. Results for the first quarter show solid growth throughout our portfolio and ongoing progress under our long-term value creation plan. Rental revenue rose 20.6% compared with the same period a year earlier, NOI improved 17.4% over last year, and FFO adjusted and AFFO adjusted were up 12% and 10.4%, respectively, versus last year. We also kept seeing strong growth in same community metrics for the quarter. Same community revenue grew 8.6% over last year, while same community NOI rose 5.3% compared with the first quarter of 2025. Beyond our strong organic performance, we closed a strategic acquisition during the quarter in Cleves, Ohio, which further extends our presence in one of our core markets. That acquisition aligns with our approach of targeting markets we know well and communities that offer occupancy upside potential. Nathan will go into more detail on this transaction and how it fits our broader growth strategy in his remarks.

These financial results give you a picture of the solid fundamentals in our industry and how far we've come on our growth strategy. Performance matters, sure, but our mission stays front and center: delivering affordable housing and outstanding residential living experiences in our adult and family-oriented manufactured housing communities, all while creating value for shareholders. Sustainability is part of who we are, and our sixth annual ESG report lays out our ESG practices and performance — you can find it on our website. We're encouraged by the strides we've made across many areas, including environmental stewardship, community reinvestment, and corporate governance. With that, I'll hand things over to Nathan for his remarks. Nathan?

Thanks, Kurt. Good morning, everyone. We're still seeing robust results throughout our current communities, and we've also been finishing up strategic acquisitions. For us, strong performance starts at the community level. Our core initiatives keep delivering positive outcomes, including gains in occupancy, lot rent, and other revenue streams throughout the portfolio. We're also staying focused on improving the resident experience at our communities. We take real pride in our ongoing investment in amenities, infrastructure upgrades, and community engagement efforts — all of which bolster resident satisfaction and long-term retention. Alongside our emphasis on operational performance, we keep pursuing strategic acquisitions in key markets where we already operate. During the past quarter, we acquired a community with 96 lots in Cleves, Ohio, which further extends our bolt-on strategy and our presence in that market. That deal follows our recent purchase of three communities in the greater Cincinnati area and shows our ongoing emphasis on core markets where we can achieve operational efficiencies and build long-term value. As is true with many of our acquisitions, we see potential to boost performance via future community expansion capable of supporting another 12 lots. The community has also gained from substantial infrastructure improvements, including newly paved streets and solar lot projects.

The property also features upgraded amenities — a big clubhouse, a playground, a ballfield, and basketball courts. Broadly speaking, our attention stays on the operating approach that pairs robust organic expansion with carefully disciplined acquisitions. On that note, I'll hand things to Eddie so he can walk through the financial results in greater detail. Eddie?

Thanks, Nathan, and good morning, everyone. The results we posted for the first quarter show sustained strength throughout the portfolio, powered by organic growth and the contributions of acquisitions completed recently, while we kept the balance sheet conservative. For the quarter, revenue rose 20.6% versus the same period a year earlier, reflecting acquisitions along with lot rent increases across the portfolio. Same community revenue came to $26.9 million in the first quarter, up roughly 8.6% from the comparable period last year. That gain came from higher monthly lot rents and ancillary revenues, together with an increase in same community occupancy. Net operating income was $19.3 million and the NOI margin was 64.5%, versus $16.4 million and 66.2% in the same period last year. Same community NOI margin in the first quarter was 64.2%, down 2% from last year. Although NOI rose on amenity fees, NOI margins took a negative hit because those services carry a lower margin than we have historically achieved. Winter storms in the quarter also weighed significantly on costs and reduced margins. FFO adjusted was $9.6 million and FFO adjusted per unit was 38.1 cents for the quarter, increases of 12% and 11.4% respectively compared with last year.

For the quarter, adjusted AFFO came to $8.6 million, and adjusted AFFO per unit was 34.1 cents — gains of 10.4% and 10%, respectively, versus last year. Same community occupancy reached 84.8%, up 1.4% from the same period a year earlier, which continues to show how committed we are to resident satisfaction and to making sure our communities sit in desirable locations. Rent collections came in at 99.8% for the quarter, which shows the strength and consistency of the MHC sector. As of March 31, total lot occupancy stood at 84.1%, and average monthly lot rent was $516. We stay focused on keeping a conservative balance sheet, with emphasis on long-dated fixed-rate debt. Weighted average mortgage interest rate was 4.54%, and weighted average mortgage term to maturity was eight years. No substantial debt maturities come due before 2030. Total liquidity was $13.2 million. As at March 31, 2026, the REIT holds 21 unencumbered investment properties, with total fair value of $130.7 million. With that, I'll hand things back to Kurt for some closing remarks. Kurt?

Thanks, Eddie. Looking forward, our attention stays on carrying out the strategy and keeping up delivery of long-term value to our unitholders. In the quarter, we took pride in being honored by the Manufactured Housing Institute with the 2026 Manufactured Home Community Operator of the Year Award. That gives Flagship its second Operator of the Year Award in a row and our fifth national Community Operator of the Year recognition from MHI. Such recognition stems directly from how dedicated our team is and how they concentrate on building safe communities that are amenity-driven and vibrant throughout our portfolio. We believe this ongoing emphasis on operational excellence, together with our disciplined growth strategy, puts us in a strong position for a year ahead. Thank you for your time today, and I will now open the line for questions.

Thank you. If you'd like to pose a question, simply press star one one on your phone and hold until your name is called. Should you wish to cancel your question, just press star one one once more. Kindly remain on the line while we put together the Q&A roster. Our opening question is from Tom Callaghan of BMO Capital Markets. Your line is now open.

Appreciate it. Good morning, everyone.

Good morning there, Tom.

Good morning. Perhaps we could begin with occupancy. Compared with Q4 of last year, Q1 came in fairly strong. Is there anything particular worth highlighting regarding what drove that? I know you generally point to growth of 200 to 200 basis points annually, but given how Q1 turned out, would it be fair to think there might be some upside this year?

I believe there's still some runway left on occupancy this year. We saw a bit of seasonality kick in at the end of last year. Sometimes with your home rental fleet you just get a little turnover, and we had a little bit of that at the end of last year. We've re-leased those units. Again, I'm fairly optimistic. Across all of our markets, our occupancy is going to grow within our forecasted range.

Okay, let's shift over to expenses for Eddie. You mentioned that the winter storm affected Q1 to some degree. Is there a way to put a number on how much it pushed expense growth, or to put it another way, how should we view same property expense growth for the rest of this year compared with that Q1 figure in the 15% range?

The first quarter was somewhat unusual in a few respects, mainly involving snow removal along with the labor, repairs, and maintenance tied to it. From my perspective, that came to roughly half a penny to a penny of FFO per unit. The effect was around $250,000, give or take, in added cost year over year. When you look at expenses going forward and want to take that effect out, I'd say that range is probably about right.

Appreciate it. I'll hand it back over and get in line. Thank you all.

Thanks, Tom.

Mark Rothschild from Canaccord has our next question. Your line is open now.

Appreciate it, and morning to everyone.

Good morning there, Mark.

Hey, could you just say a bit about the homes you've been purchasing? How is this going to affect your growth over the next year? I think you bought roughly 150 homes in the quarter. Do you expect to do much more of this, and how should we think about that?

Mark, we had a bit of trouble hearing you, but I believe your question was about the rental home fleet we added during the first quarter. Each year, our goal is to work toward reducing that rental home fleet as a share of total occupancy. We see it as a necessary tool in the shed, though we view homeownership as the better tool. In the first quarter, we increased occupancy both by releasing rental homes and through home sales. What we've done with that rental fleet is high-grade the existing fleet, and we're looking to sell off the older units. Again, I'm not sure we'd add a lot more to the fleet this year, but I'm certain we will as we manage the individual sites. Sometimes, when you bring these sites up to 98% occupied — right now about 40 of our communities sit at historically high occupancy standards, if not 98% to 100% — when you look at that, for those last 2%, sometimes a rental home has to go in to bring them up to full occupancy.

Great, thank you. Perhaps just one more question building on what we discussed regarding expenses. Given how heavily Q1 was affected by weather, should we anticipate, with everything else held constant, a stronger same property NOI growth rate over the remainder of 2026?

I've always believed we can reach upper single-digit to low double-digit growth in property NOI on that same base. Part of the slowdown is clearly because the year-over-year rollout of our cable agreements is now catching up with itself, right? As we sit here for 2026, there aren't any further agreements going into effect. We'll keep pushing on that, and it could provide some support. I definitely think we can return to upper single-digit figures going forward.

Perfect — I really appreciate it.

Appreciate it.

We move on to a question from Kyle Stanley at Desjardins. Your line is open now.

Appreciate it. Morning, everyone.

Good morning, everyone.

Kyle.

I'd like to turn now to the home sales side. How have home sales been in the early part of this year? I know there's usually some seasonality and strength early in the year, especially after tax time. I'm just curious how that's played out so far this year and perhaps how it stacks up against prior years.

Home sales came in strong during the first quarter, and that momentum has carried over into April as well. What you did notice, however, is that weather affected our ability to get homes shipped out. Honestly, I believe first-quarter home sales would have been even better had we been able to get the houses onto the lot. Kyle, there were many occasions when they went 10 days without shipping a single home, because you simply can't ship homes when there's snow on the ground in the Midwest. This isn't Canada, where you're used to doing that regularly. Kentucky has three snow plows, and Tennessee has zero. That does create a bit of a problem. I felt very good about the first-quarter home sales given the comparison we were up against.

All right, thanks for taking that. I might circle back to the rental fleet for one more point. I noticed a rental fleet maintenance technician team has been set up. I'm just curious — could you say a bit more about it? Did that need simply arise because the rental fleet is larger? I'd like to understand how we should think about it.

We're simply aiming to operate with greater efficiency. Once more, when we own a rental home, the goal is to deliver a solid product, and we've dedicated team members specifically to ensure that happens and to get those units turned around more quickly. On the CapEx side, it's more efficient with them. That's one of the advantages we enjoy because, once again, we follow this bolt-on spoke-and-wheel type of approach, correct? In Louisville, there are 15 locations. You can have them all situated within 30 minutes of downtown Louisville, and that pattern repeats across many of our markets. You're able to capture these moments of efficiency, which improves our margins, and again, that comes down to us overseeing it and being the operators we are.

I just want to get some clarity — previously, when a rental unit changed over, how was that handled? Did you outsource it to another party, or what?

In the past, we would typically bring in a subcontractor to handle whatever work was required to turn that unit. What we've attempted to do—and this ties to Kurt's point—is for two reasons: first, for timeliness, it can sometimes be difficult to get the contractor out there and get that turned in a timely manner, which leaves us with a vacant rental for a longer stretch; having our own crew means it can be completed faster, and it also means it can be done in a more cost-efficient way.

Great, that covers everything on my end. I'll hand it back over. Thanks, everyone.

Himanshu Gupta from Scotiabank has our next question. Your line is open now.

Thanks — and good morning, everyone.

Good morning there, Himanshu.

Regarding same-community NOI, Q1 came in at a mid single digit rate, and Eddie, I believe you cited high single digit. I'd like some clarity here: does that reflect what you expect across the entire year, or does it describe what you're observing from Q2 through Q4 going forward, in that high single digit ballpark?

My expectation is roughly that from Q2 through Q4, that momentum will begin building again and opex will look closer to historical levels. Since we now have fuller seats on the manager side, payroll and benefits will push opex somewhat higher, as more of those seats are filled. It raises your opex figures, yes, but it also lets us drive occupancy, correct? Part of why you struggle at times to hold or grow occupancies is lacking managers in seats to assist with home sales or unit rentals. I believe we'll keep seeing the payoff, yet on the opex side you'll see it a bit elevated in payroll and benefits since those seats are full. From Q2 through Q4, I think we can return to the higher single digits. For the full year, probably around the mid single digits.