Mr. Eddie Carlisle reports

FLAGSHIP COMMUNITIES REAL ESTATE INVESTMENT TRUST ANNOUNCES FOURTH QUARTER AND FULL YEAR 2023 RESULTS

Flagship Communities Real Estate Investment Trust today released its fourth quarter and full-year 2023 results. The financial results of the REIT are presented in this news release in accordance with international financial reporting standards (IFRS) as issued by the International Accounting Standards Board (IASB), except where otherwise noted. Results are shown in U.S. dollars unless otherwise noted.

Fourth quarter 2023 results:

• Rental revenue for the three months ended Dec. 31, 2023, was $18.8-million, an increase of 19.5 per cent compared with $15.7-million for the three months ended Dec. 31, 2022.
• Same-community revenue (1) for the three months ended Dec. 31, 2023, was $15.7-million, up 11.8 per cent compared with $14.0-million for the three months ended Dec. 31, 2022.
• Net (loss) and comprehensive (loss) for the three months ended Dec. 31, 2023, totalled $1.5-million, compared with $700,000 for the three months ended Dec. 31, 2022.
• Funds from operations (FFO) per unit (diluted) (2) for the three months ended Dec. 31, 2023, were 29.4 cents, an increase of 4.6 cents per unit or 18.5 per cent compared with the three months ended Dec. 31, 2022.
• Adjusted funds from operations (AFFO) per unit (diluted) (2) for the three months ended Dec. 31, 2023, were 25.8 cents, compared with 20.9 cents for the three months ended Dec. 31, 2022, which was an increase of 4.9 cents per unit or 23.4 per cent.
• Net operating income (NOI) for the three months ended Dec. 31, 2023, was $12.4-million, up 20.0 per cent compared with $10.4-million for the three months ended Dec. 31, 2022.
• Same-community NOI (1) for the three months ended Dec. 31, 2023, was $10.7-million, an increase of 15.6 per cent compared with $9.2-million for the three months ended Dec. 31, 2022.
• NOI margin (1) for the three months ended Dec. 31, 2023, was 66.3 per cent, compared with 66.0 per cent for the three months ended Dec. 31, 2022.
• Same-community NOI margin (1) for the three months ended Dec. 31, 2023, was 68.2 per cent, an increase of 2.2 per cent compared with 66.0 per cent for the three months ended Dec. 31, 2022.
• Rent collections (1) for the three months ended Dec. 31, 2023, were 99.6 per cent, up from 99.5 per cent for the three months ended Dec. 31, 2022.
• Subsequent to the 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 Dec. 31, 2023, was $71.1-million, an increase of 20.8 per cent compared with $58.8-million for the year ended Dec. 31, 2022.
• Same-community revenue (1) for the year ended Dec. 31, 2023, was $61.4-million, up 10.5 per cent compared with $55.6-million for the year ended Dec. 31, 2022.
• Net income and comprehensive income for the year ended Dec. 31, 2023, totalled $65.1-million, a 52.5-per-cent increase from $42.7-million for the year ended Dec. 31, 2022.
• FFO per unit (diluted) (2) for the year ended Dec. 31, 2023, was $1.185, an increase of 9.7 per cent compared with $1.080 for the year ended Dec. 31, 2022.
• AFFO per unit (diluted) (2) for the year ended Dec. 31, 2023, was $1.038, which was an increase of 10.6 cents per unit or 11.4 per cent compared with 93.2 cents for the year ended Dec. 31, 2022.
• NOI for the year ended Dec. 31, 2023, was $46.9-million, an increase of 20.5 per cent compared with $38.9-million for the year ended Dec. 31, 2022.
• Same-community NOI (1) for the year ended Dec. 31, 2023, was $40.9-million, an increase of $3.9-million or 10.6 per cent compared with $36.9-million for the year ended Dec. 31, 2022.
• NOI margin (1) for the year ended Dec. 31, 2023, was 66.0 per cent, compared with 66.2 per cent for the year ended Dec. 31, 2022.
• Same-community NOI margin (1) for the year ended Dec. 31, 2023, was 66.5 per cent, an increase of 0.1 per cent compared with 66.4 per cent for the year ended Dec. 31, 2022.
• Rent collections (1) for the year ended Dec. 31, 2023, were 99.4 per cent, which is up from 98.7 per cent for the year ended Dec. 31, 2022.

As at Dec. 31, 2023:

• Debt to gross book value (1) as at Dec. 31, 2023, was 40.3 per cent, compared with 42.9 per cent as at Dec. 31, 2022.
• Total portfolio occupancy was 83.6 per cent as at Dec. 31, 2023, a 0.5-per-cent increase compared with 83.1 per cent as at Dec. 31, 2022.
• Same-community (1) occupancy increased to 84.8 per cent as at Dec. 31, 2023, an increase of 1.5 per cent compared with 83.3 per cent as at Dec. 31, 2022.

(1) See other real estate industry metrics.

(2) See non-IFRS (international financial reporting standards) financial measures.

"Two thousand twenty-three was a highly successful year for Flagship," said Kurt Keeney, president and chief executive officer. "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, resetting 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 home ownership option for many Americans."

Financial overview

Rental revenue and related income in the fourth quarter of 2023 were $18.8-million, up 19.5 per cent compared with 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 Dec. 31, 2023, were $71.1-million, or a 20.8-per-cent increases compared with the prior year, driven by the same factors.

Same-community revenues for the fourth quarter and year ended Dec. 31, 2023, were $15.7-million and $61.4-million, respectively, exceeding those for the fourth quarter and year ended Dec. 31, 2022, by approximately $1.7-million and $5.8-million or 11.8 per cent and 10.5 per cent, 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 Dec. 31, 2023, were approximately $800,000 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 Dec. 31, 2023, were $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 per cent, respectively, compared with $10.4-million and 66.0 per cent during the fourth quarter of 2022. NOI and NOI margin for the year ended Dec. 31, 2023, were $46.9-million and 66.0 per cent, respectively, compared with $38.9-million and 66.2 per cent for the year ended Dec. 31, 2022.

Same-community NOI margins for the fourth quarter and year ended Dec. 31, 2023, were 68.2 per cent and 66.5 per cent, respectively, which increased 2.2 per cent and 0.1 per cent, 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 per cent as at Dec. 31, 2023, compared with 83.3 per cent during the prior year, an increase of 1.5 per cent, 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 per cent from the fourth quarter of 2022. AFFO per unit for the three months ended Dec. 31, 2023, and Dec. 31, 2022, was 25.8 cents and 20.9 cents, respectively, resulting in an increase of 23.4 per cent. AFFO and AFFO per unit for the year ended Dec. 31, 2023, were $21.6-million and $1.038, a 17.8-per-cent and 11.4-per-cent increase, respectively, compared with the year ended Dec. 31, 2022.

Rent collections for the fourth quarter of 2023 were 99.6 per cent, an increase from 99.5 per cent from the same period in 2022.

Subsequent to the 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 -- pro forma after debt refinancing in the REIT's management's discussion and analysis for the year ended Dec. 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 Dec. 31, 2023, on a pro forma basis. The REIT's weighted average mortgage interest rate was 4.04 per cent as at Dec. 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 (manufactured home communities). The REIT has continuing submetering and water recapture programs to help conserve water and detect leaks. Historically, submetering has reduced water consumption by up to 30 per cent compared with previously unmonitored water usage. Flagship continues to implement submetering and water recapture 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-per-cent-solar-powered system.

As at Dec. 31, 2023, the REIT owned a 100-per-cent interest in a portfolio of 73 MHCs with 13,310 lots, as well as two recreational vehicle (RV) resort communities with 470 sites, An attached table provides a summary of the REIT's portfolio as of Dec. 31, 2023, compared with Dec. 31, 2022.

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 in the 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 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 home ownership 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 with 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

FFO and 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 with FFO reported by other issuers.

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 (restricted units) and vested DTUs (deferred trust units)) 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 with AFFO reported by other issuers.

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) (acquisitions revenue, as well as acquisitions 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).

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.

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 that have been owned and operated continuously since Jan. 1, 2022, by the REIT and such measures (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 the remaining term of each mortgage by the mortgage balance and dividing by the sum by the total mortgage balance.

Fourth quarter 2023 results conference call and webcast

Date:  Friday, March 15, 2024

Time:  8:30 a.m. ET

Join by phone:  Please register on-line at least 10 minutes before the start of the call. Upon registration, an e-mail will be sent, including dial-in details and a unique conference call access code required to join the live call.

Live webcast:  A live webcast will be available.

About Flagship Communities Real Estate Investment Trust

Flagship Communities 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.

We seek Safe Harbor.