Transcript: Flagship Communities Q2 2026 Earnings Conference Call

On Thursday, Flagship Communities (TSX: MHC ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. This content is powered APIs. 9% improvement in NOI compared to the previous year.

The company completed a strategic acquisition in Northern Ohio, enhancing its presence and operational efficiencies, and continues to focus on organic growth and resident experience. Flagship Communities maintained a strong balance sheet with no substantial debt maturities until 2030 and increased its revolving line of credit to $33 million. 4% and a high rent collection rate of 99%. Management expressed confidence in the MHC sector's resilience and affordability, planning to maintain stable growth and strategic acquisitions in core markets.

Full Transcript OPERATOR Hello, ladies and gentlemen. Thank you for standing by. Welcome to the Flagship Communities REIT second quarter 2026 earnings call. At this time, all participants are in a listen-only mode.

Following the presentation, we will hold a brief question-and-answer session for analysts and institutional investors. I would like to remind everyone that this conference call is being recorded. Today's presenters are Curt Keeney, Flagship's President and Chief Executive Officer, Nathan Smith, Chief Investment Officer, and Eddie Carlisle, Chief Financial Officer. Please note that comments made on today's call may contain forward-looking information and this information, by its nature, is subject to risks and uncertainties.

Actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the Company's relevant filings on SEDAR+. com. Flagship has also prepared a corresponding PowerPoint presentation which it encourages you to follow along with during this call.

And now I'll pass the call over to Curt Keeney. Curt Keeney, President and Chief Executive Officer Thank you, Operator. Good morning, everyone. Thank you for joining us.

Today, Flagship delivered another strong quarter of operating and financial results driven by the continued success of our core business and the MHC industry. In the second quarter we experienced higher overall occupancy and higher same community occupancy as well as increases in our same community financial metrics. When we see improvements of this nature, it speaks to the strong demand for affordable housing and the overall strength in the MHC sector. In our almost six years as a public REIT and over 30 years in the MHC space, we have proven our ability to perform well in all types of economic environments.

We drive growth through both organic initiatives and disciplined expansion in our core markets. We completed one strategic acquisition this quarter, which Nathan will speak to in a moment. However, our success was largely due to the continued progress of our underlying business, which is how we expect to generate value for unitholders. 3% respectively over last year.

We also continued to see strong growth in same community metrics during the quarter. 3% over the same period. 4% increased by 2% relative to the end of last year, which to us is a great sign for the health and stability of the MHC sector. For over 20 years, the MHC sector has grown approximately 4% per year, outperforming all other real estate sectors.

As you can see from slide 6 in this presentation, NOI growth remained positive during the housing crisis and Great Recession and more recently remained resilient during the pandemic. In today's environment, home sales for traditional housing and the condo market are down primarily due to rising prices, credit tightening and higher mortgage rates, and general economic uncertainty. In contrast, we have generated stable and recurring rental income streams mainly due to our large and diverse resident base. We are always looking to improve the resident experience in our community and we are always pleased when those efforts are recognized by our industry.

This past quarter we were awarded the 2025 Community of the Year by the Kentucky Manufactured Housing Institute for our Sawyer Point community in Georgetown, Kentucky. This is the fifth consecutive year that Flagship has won KMHI's Community of the Year award and Sawyer Point is a reflection of how new amenities and community programming can create excellent living conditions for our residents. It's also a reflection of our amazing team that always put our residents first and prioritize safe, amenity-driven and vibrant communities across our portfolio. I will now turn it over to Nathan for his remarks.

Nathan Smith, Chief Investment Officer Thanks, Curt. Good morning, everyone. I've always said strong performance begins at the community level and that is a big reason why we had another great quarter. Simply put, if we invest in the resident experience, they are more likely to stay in our communities.

We are proud of our continued focus on improving infrastructure and community engagement initiatives, all of which help support a positive experience and the long-term retention of our residents. In addition to our community-level focus, we also continue to pursue strategic acquisitions that are located in key markets where we operate. This past quarter we expanded our presence in Northern Ohio with a strategic acquisition of an MHC that is expected to be immediately accretive to our AFFO. This 28-lot MHC is located in Marblehead, Ohio and is fully occupied.

It includes a private beach area and a fishing pier along with a number of boat slips. This is another example of our bolt-on acquisition strategy. This MHC is near another Flagship-owned community in Northern Ohio and allows us to continue to generate operational efficiencies by managing nearby properties. Together, we continue to take a disciplined approach to acquisitions while focusing on strong organic growth and delivering value for our unitholders.

With that, I'll turn it over to Eddie to review our financial results for the quarter. Eddie Carlisle, Chief Financial Officer Thanks, Nathan. Good morning, everyone. During the second quarter we continued to generate solid financial results from our organic portfolio while maintaining a strong and stable balance sheet.

4% over the same period last year due to acquisitions as well as lot rent increases across the portfolio. 3 million for the second quarter grew by approximately 9% over the comparable period last year. This increase was driven by higher monthly lot rents and ancillary revenues combined with a rise in same community occupancy. 6% during the same period last year.

7% compared to last year. While NOI saw an increase from amenity fees, NOI margins were negatively impacted due to the services having a lower margin than what we have historically achieved. Seasonal weather impacts during the quarter also had a significant impact on cost and decreased margins. 2% and 9% increase, respectively, compared to last year.

1% increase, respectively, compared to last year. 4% increased 2% from the end of last year, which continues to reflect our resident-level focus. As Nathan mentioned earlier, rent collections for the quarter were 99%, demonstrating the strength and consistency of the MHC sector. 7%, which also increased relative to the end of last year, and our average monthly lot rent was $516.

We remain focused on maintaining a strong and conservative balance sheet with an emphasis on long-dated fixed rate debt. 7 million mortgage. 12% for the supplemental borrowing, with no change to the maturity date. 7 years.

We have no substantial debt maturities until 2030. 8 million. The REIT currently has 18 unencumbered investment properties with a total fair value of $103 million, as at June 30, 2026. With that, I'll now turn it back over to Curt for some final remarks.

Curt Keeney, President and Chief Executive Officer Thanks, Eddie. Our strong first half of 2026 has positioned us well to have another solid year. We remain confident in the outlook for our business and the MHC industry as housing prices, high monthly rental rates for multifamily competitors, and mortgage rate increases have the potential to lead more people towards manufactured housing because our homes remain affordable. Looking at the second half of the year, our priorities remain unchanged.

We expect to maintain organic growth by continuing to invest in the resident experience and by maximizing operational efficiencies. And we will do it from a position of financial strength with a conservative balance sheet and no substantial debt maturities until 2030. All of this speaks to the strength and the quality of our residents and of the predictability and the consistency of the MHC sector. We certainly thank you for your time today, and I will now open up the line for questions.

OPERATOR Thank you. To ask a question, please press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. Please stand by while we compile the Q&A roster.

Our first question comes from the line of Mark Rothschild with Canaccord. Your line is now open. Mark Rothschild, Analyst at Canaccord Genuity Thanks. Good morning, everyone.

Can you just talk a little bit about the acquisition environment? Been kind of relatively slow and quiet. Are you seeing opportunities? Is it that people are just maybe quieter in the summer?

Is it that the pricing is not where you're comfortable with? And how do you see that picking up over the remainder of the year? Nathan Smith, Chief Investment Officer Good morning, Mark. Well, Mark, we've done two so far this year, and we have looked at lots of deals.

We have not seen the cap rate expand, and many times in some locations in the country, it's contracted. You know, we've seen very few deals close that we bid on or we were interested in. But we continue to look, and we're going to stay very focused on our area, and we're not interested in, you know, doing something that's not in our area right now. So we continue to look.

I looked at a lot of deals. Many of them have not traded. Mark Rothschild, Analyst at Canaccord Genuity Okay, great. Maybe just one more.

I've seen you guys a little more active in actually buying homes to rent out on your properties. I realize this is kind of unique for certain properties, but how are you finding this program? I know it was something you weren't too excited about a few years ago. Is this more of an opportunity, something you could do on other properties to take advantage of excess land?

Curt Keeney, President and Chief Executive Officer Yeah. Hey, Mark, you know, we put 224 rental homes into the fleet in the first six months of the year. Don't really look to continue that at that level. You know, we bought some really nice locations last year and some of these locations we have, 53% of our locations are at all-time highs on occupancy.

And sometimes when you get down to the last part of the community, right, when you get down to the last lot, the last 5%, you might need a rental home to help make some empty lots economic. And on the new acquisitions you might need a rental home to help change maybe the curb appeal if you're buying a, you know, a value-add property. Yeah, I don't look for us to be that heavy-handed. We did sell 39 of them.

I look for us to continue to sell off the older units. And so that's, that's, it's not a change in strategy at all for us. It's just, you know, I've always said it's a blunt tool in The shed, but it is a tool, and we'll use it and try to minimize it. We're still a homeownership model.

So, you know, we've still got—I think it's 88% of our customers are homeowners—and we have 500-lot communities with no rental homes. We think that's a good strategy. Thank you. OPERATOR Our next question comes from the line of Jonathan Kelcher with TD Cowen.

Your line is now open. Jonathan Kelcher, Analyst at TD Cowen Thanks. Good morning. On the same-property NOI margin, the decrease—Eddie, I think you talked a little bit about maybe some seasonal weather impacts, and also you guys have more amenities that are eating into it a little bit.

Can you maybe quantify the difference? Eddie Carlisle, Chief Financial Officer Yeah. So, effectively, Q1 was a rough quarter, and we talked about that pretty extensively then, but some of that actually led into Q2 when it comes to the water/sewer recapture and water leaks specifically. If you look at year over year, last year we were in the range of 95% to 97% on our water/sewer recapture.

For the first five months of this year—four and a half months of this year—we were below 90%, and that really eats into the margin. Jonathan Kelcher, Analyst at TD Cowen That's a big number. Eddie Carlisle, Chief Financial Officer And so the end of May and into the month of June was the first month that we had gotten back over that 90% threshold. So that's a big portion of what's driving that.

As far as the margins on the ancillary revenue, the cable agreements—those things—yeah, I mean, it's a pretty thin-margin business but a somewhat large amount of revenue, so it does certainly put some pressure on the margin there. 5% margins, which is kind of where I would expect us to trend moving forward. But the impact of that water/sewer was the biggest driver of that in Q2. Jonathan Kelcher, Analyst at TD Cowen Okay, so assuming Q3 has no weather impacts, margins probably down, what, 50 bps?

Eddie Carlisle, Chief Financial Officer Yeah, I think that's correct. Jonathan Kelcher, Analyst at TD Cowen Okay. And then, secondly—it might be a little bit early—but how should we be thinking about lot increases for January 1st? Curt Keeney, President and Chief Executive Officer You know, you are right.

It's a little early to the conversation. You know, historically, we've always guided 4% or 5%, something in that range. We're still in that range. What we're seeing in our markets in the Midwest is very stable environments economically.

People in the competing products—mainly apartments—apartment rents are still going up 5% annually. And we've still got a great disparity—$300 to $500 typically, if not more—between us and apartment rents all-in if you own a home. So I think we're in the same general range. This is just a crazy stable time, actually.

So I don't see anything driving us out of our guidance. Jonathan Kelcher, Analyst at TD Cowen Okay, that's helpful. I'll turn it back. Curt Keeney, President and Chief Executive Officer Thank you.

Sure. Thanks, John. OPERATOR Our next question comes from the line of Kyle Stanley with Desjardins. Your line is now open.

Kyle Stanley, Analyst at Desjardins Thanks. Morning, guys. Curt Keeney, President and Chief Executive Officer Morning, Kyle. Morning.

Kyle Stanley, Analyst at Desjardins Just on the occupancy side, obviously you've had, I think, a really strong start to the year. It does seem like some of that was tied to a strong home sales season, which I think you've mentioned in the past. How are you feeling about further occupancy growth into the balance of the year, maybe as home sale season starts to slow a little bit, just from a seasonal perspective? Curt Keeney, President and Chief Executive Officer Yeah, I think when you look at the seasonality of the business, it's great when you end the second quarter and you're up 2% year over year—that's a good place to be.

And especially as you head into the fourth quarter—with the holiday schedule—you just don't move occupancy a lot in the fourth quarter. So, I think if we can hold on to our occupancy gains throughout the rest of the year, I'll be very pleased with it. Again, we've always guided 1% to 2% same-community occupancy gains year over year, and I think we're going to be right in there, probably towards the high end of it as we march forward. Again, there's no problem with demand; there's just a little cyclicality as you head into the fourth quarter with the holiday schedule.

Kyle Stanley, Analyst at Desjardins Right, okay, that makes sense. So, looking to kind of hold the gains is probably the target at this point.