Hello, everyone, and thank you for standing by. Welcome to the Flagship Communities Real Estate Investment Trust Q2 2022 Earnings Call. At this time, all participants are in listen-only mode. Following the presentation, we will hold a brief question-and-answer session for analysts and institutional investors. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any moment. I would like to remind everyone that this conference call is being recorded. Today's presenters are Kurt 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. These documents are also available on Flagship's website at flagshipcommunities.com. Flagship has also prepared a corresponding PowerPoint presentation to encourage you to follow along with during this call. Now I'll pass the call over to Kurt Keeney. Please proceed.
Thank you, operator, and good morning, everyone. We are pleased to report our results for the Q2 and the year to date, which re-demonstrates that our strategy we put in place at the IPO is effective and resilient under all economic conditions. We added 11 communities and almost 3,000 lots to our portfolio year over year. We increased revenue compared to Q2 2021 by 46%, net operating income by 47%, and adjusted funds from operations by 71%. This speaks to our ability to act on opportunities in the market and generate accretive growth. We also grew our same community occupancy to 82.4% and increased same community NOI by 8.5%, which speaks to our skill as operators. We view the current economic environment as positioning us for further success.
The MHC sector has shown a consistent track record of growth over the past 20 years, and we remain bullish on the sector's outlook even as economic uncertainty increases. MHCs delivered positive MoM NOI growth during the past recession, including the most recent COVID pandemic. We are in an inflationary economic environment with rising mortgage rates, energy costs, and basic commodities. We believe we are at the beginning of a recession. However, our resident base is stable and growing. Unemployment in our markets is low, and anyone who wants a job basically has one. As inflation pressures rents and mortgage rates higher, traditional stick-built home buying becomes more difficult for customers. This climate pressures home buyers toward a manufactured home as an acceptable, more affordable alternative.
The Flagship team has been in the manufactured home business since 1995 and experienced firsthand the recessions of 2000, again in 2008, 2009, and during the COVID pandemic. We did very well in increasing occupancy in our communities and adding new acquisitions to our portfolio during these periods. Today, we have become one of the largest manufactured home community operators in the Midwest. We are well-positioned in this market, which allows us to take advantage of market opportunities. There are three critical aspects to our success to date and what we have seen going forward. We have 27 years of consistent performance along with an extensive network and strong brand presence that drives acquisition opportunities towards us. Second, we operate a homeownership model, not heavy on a rental home model, meaning there is no affordable, more affordable homeownership alternative available.
This creates a more stable tenant base and provides us with long-term reliable cash flow. Finally, we have an efficient operating platform that passes on most variable costs such as utilities and property taxes to the residents. This provides us with some inflationary protection and enables our ESG strategy. In the past quarter, our success as operators was recognized when our Suburban Point community in Lexington, Kentucky, was awarded the Community of the Year award by the Kentucky Manufactured Housing Institute. This 546-lot community has an amenity package that includes a clubhouse, new municipal-grade playground, soccer field, and basketball court. In addition, we also received in April a National Community of the Year award from the Manufactured Housing Institute for our Waterford Pointe community in Evansville, Indiana. This is the 330-lot quiet family community.
Amenities are abundant with a nice clubhouse, paved driveways, playground, fishing lake, walking trails, and picnic areas. These awards align with our homeownership model that focuses on creating attractive communities that are amenity-driven, close to schools, shopping, and jobs. As we say, you move in because you can afford it, but you stay because you actually like it. Our operating model also supports our ESG strategy. An important part of the strategy is our sewer and water management program, which involves leak detection and submetering. This has proven very effective and typically results in 20%-30% water conservation post-acquisition. Solar-powered lighting is also an essential part of our ESG program. To date, we have installed 850 solar lights, which replaces our traditional street lighting. We intend to eventually convert every light pole in our communities.
This program has been well-received by our residents as it enhances their environment and reduces costs. These initiatives, along with our 75% women in management and 29% minority resident population, demonstrate that we are setting the standards for ESG in our industry. I will now turn it over to our Chief Investment Officer, Nathan Smith, for additional details.
Thanks, Kurt. As Kurt mentioned, we are well-positioned to consolidate the MHC sector, particularly in the current economic environment. We have a very solid pipeline of opportunities that we are targeting to close through the third and Q4 of 2022. This year to date, we have made three acquisitions, two in the last quarter. Continuing on our bolt-on strategy, in April, we purchased a 103-site manufactured housing community in Riverton, Illinois, that is 89% occupied. This community is about five miles from our first Illinois community in Springfield that was purchased in August of 2021. Riverton shares the same school district with our Springfield location, which is one of the most desirable school districts in the area. Like Springfield, Riverton is a high-quality property and was immediately accretive to our AFFO.
Eventually, we expect to build a cluster of communities in Springfield as we have in all of our other metropolitan locations. In June, we purchased two communities in North Florence, Kentucky, close to our corporate headquarters and in the heart of where we first began to build our portfolio in 1995. These communities include 345 lots and are 70% occupied. We are excited about this acquisition opportunity. We have great economies of scale in both operations and marketing and expect to take advantage of these locations. Our acquisitions that were completed during the H1 of 2022 have no sales activity for several years. We are in the process of beginning our marketing and sales strategy at these locations.
I would also like to comment on the acquisition of the Florence community, which is typical of several acquisitions that we have made in the past. We have been working on these acquisitions for many years, and we were the first when the owners called, and they finally decided to sell. This was a relationship acquisition with no realtor involved and was completely off-market. What was most important for the seller was to have the certainty of close. We were able to provide that and work with them directly to create a great asset purchase for both of us. As the largest operator in the Midwest with 27 years of experience and an active marketing program with strong brand awareness, we are often top of the mind when an MHC owner is looking to sell.
Usually, it is a family deciding to sell after owning a community for many decades, and they need a buyer with the ability to meet the closing without having to depend on external raising of funds. Several opportunities like the recent acquisition in Florence are currently under consideration, and our pipeline remains very strong. Rising interest rates could also increase acquisition opportunities from independent operators looking at options when a note comes due. You can also expect us to make further bolt-on acquisitions. The United States industry is highly fragmented. About 80% of an estimated 4.2 million manufactured housing pads available for lease are owned by small operators. Within that group, many acquisitions meet our criteria and have the potential to deliver long-term unitholder value. I'll now turn it over to Eddie, our CFO, to discuss this quarter's financial performance.
Thanks, Nathan. The results for Q2 2022 and the six months that ended June 30th reflect our success in growing the portfolio and improving same community performance. Same community properties are defined as communities held by the REIT as of January 1st, 2021. Same community contributions to the top line come from occupancy growth and the rent increases we put in place on January 1st. We will continue to see benefits from this rent increase in the future quarters. Revenue in Q2 was $14.4 million, 46% higher than Q2 2021. For the six month ending June 30th, we achieved revenue of $28 million, 44% higher than the same period in 2021. In Q2, same community revenue was $10 million, a 7.5% increase over Q2 2021.
For the six months ended June 30th, same community revenue was up 6.7% to $20.1 million compared to the same period a year ago. Net operating income for Q2 2022 was $9.5 million, a 47.1% increase over Q2 2021. For the six months ended June 30, NOI was $18.7 million, a 45.4% increase compared to the same period last year. On a same community basis, NOI was $6.7 million in Q2, an 8.5% increase over Q2 2021. For the six months ended June 30th, same community NOI was $13.5 million, a 6.8% increase compared to the same period in 2021.
NOI margin was 65.9% for Q2 and 66.7% for the six months ended June 30th, 2022. The NOI margin was 66.7% and 67.2% on a same community basis, respectively for the same period. Net operating income benefited from our accretive acquisition strategy, with same community NOI reflecting our success at cost containment, such as submetering of utilities. Funds from operations were $5.4 million in Q2 2022, a 62.6% increase over Q2 2021. For the six months ended June 30, FFO was $11 million, a 60.8% increase compared to the same period in 2021. On a per unit basis, FFO was $0.277 in Q2, a 5.9% increase compared to Q2 2021.
For the six months ended June 30th, FFO per unit was $0.561, a 6.3% increase compared to the same period last year. Adjusted funds from operations was $4.7 million in Q2, reflecting a 71% increase compared to Q2 2021. AFFO was $9.6 million for the six months ended June 30th, a 71.2% increase compared to the same period a year ago. AFFO per unit increased in Q2 by 14.3% to $0.24 compared to Q2 2021. For the six months ended June 30th, AFFO per unit was $0.488, a 9.4% increase over the same period last year. Acquisitions in the same-community NOI drove this growth along with our cost containment efforts.
Focusing on labor efficiencies throughout the communities, a benefit of our clustering approach to acquisitions, as well as water and sewer savings positively impacted property operating expenses. To bolster our acquisition capacity, we made three debt transactions, one subsequent to quarter end. On April 13th, the REIT borrowed $18 million. The interest rate on the note is 3.8% fixed for 20 years, with the first 60 monthly payments being interest only. An additional $14.4 million was borrowed on June 30th. The interest rate was 5.79% for 12 years, with all payments being interest only for the full term. On July seventh, following quarter end, the REIT borrowed $10.7 million. The interest rate on the note is 4.98% for 20 years, with the first 60 payments being interest only.
As at June 30th, 2022, the REIT's debt to gross book value is 40.4% compared to 37.3% at March 31st, 2022. We ended the quarter with total cash and cash equivalents of $23.4 million with no near-term debt obligations. We also took two measures in the quarter to aid trading liquidity of the REIT's units. On May 17th, we filed a supplement to our base shelf prospectus to allow for an at-the-market offering. Under this offering, we may issue units from time to time up to an aggregate amount of $50 million. As of today, we have not issued any units under this offering. Also, to facilitate easier trading for Canadian investors, we had a Canadian dollar listing of our units under the ticker MHC.UN in June.
As with our other listing, distributions are paid in U.S. dollars. Our portfolio continues to perform well. Same community occupancy is up to 82.4% as at June 30, 2022, compared to 81.3% as at March 31st, 2022. This growing occupancy rate results from the strategy Kurt described to increase homeownership and upgrade the communities to improve resident satisfaction. Rent collections as of June 30th, 2022, were 98.2%, slightly down from 98.8% as at June 30th, 2021. As at June 30, our total lot occupancy was 83.3% compared to 83.1% as of March 31st, 2022. Average monthly lot rent was $384 as at June 30th, 2022, a 7% increase compared to $359 as at June 30th, 2021. I'll now turn it back to Kurt for some final remarks.
Thanks, Eddie. Based on our long experience in the MHC sector, we look forward to continuing to grow as we head into these challenging times. The upside potential of the MHC sector comes from demographic trends and economic pressures. Household formation is increasing in the U.S., with millennials entering the housing market. At the same time, they are faced with increased housing prices and rising mortgage rates that put single-family homes out of reach for many. In many markets, apartments can also be challenging, with high monthly rents and the uncertainty of a landlord increasing rents to address their own inflationary pressures. We saw in the previous recessions, we expect these factors will drive more people to manufactured housing, providing many Americans with a more affordable pathway to homeownership.
For less than the cost of renting an apartment, MHC residents benefit from having their own detached home with a deck, yard, driveway, and in-home laundry. They also have access to our many on-site recreational amenities. We are an attractive option for them. As the public REIT with the resources to act on opportunities, we are well positioned to benefit from these trends and deliver long-term value to our shareholders. We are one of the Midwest region's largest MHC operators and the only pure-play manufactured housing investment in the Canadian capital market. Our REIT allows investors to participate in a unique and stable market with a significant growth potential. We certainly thank you for your time today, and now I'll open up the line for questions.
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press star followed by the number one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your question will be pulled in the order that you received. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please use the handset before pressing any keys. Your first question comes from Mark Rothschild from Canaccord. Please go ahead.
Thanks. Morning, guys.
Good morning, Mark.
Hey. For several years, you talked about how private equity was aggressive, and it was impacting the pricing for properties. With rates rising, has that affected the buyer pool at all? To the extent it has, is this something that you've already seen in the deal flow and in pricing, or is it just something that you may be anticipating?
Nathan, you want to jump in?
Yeah, yeah. Mark, I would say you're seeing private equity be less aggressive because of obviously as the interest rate moves up and, you know, they're highly leveraged people. That also makes them, you know, a more difficult situation. We are seeing less of them. We do still see deals pretty competitive actually, but less people in the market. It'll take a little bit longer for them to move out. I do see deals coming back on the market once or twice because they didn't get what they felt the first time. Now you also see instead of people having a huge grouping of properties where they say, "Oh, I'm going to sell 20," they're seeing that might not be the best way to go, and they're busting them up in onesies and twosies.
You anticipate this impacting the cap rate at which you'll be able to buy properties?
We have not seen the cap rate. We've seen it stop compressing, but we have not seen it move up very much, you know. Eddie, want to add to that?
I think that, you know, the rate increases are obviously impact leverage across the entire industry. What I think it's also going to work to kind of cool the inflationary environment. You know, as an asset class manufactured housing, it really benefits from the fundamentals of short-term leases, better pricing power, as compared to other types. With the U.S. still experiencing the housing crisis and people looking for affordable housing, could be still being driven to our asset class. That works to keep this asset class cap rates, you know, very steady. I mean, we've not really seen an impact to our cap rates that we're buying at this time.
Okay, great. Thanks. Maybe just one other question. You guys have generally not been in favor of owning the homes and having the tenants just as a renter and not a homeowner. Does higher interest rates, and I know your homes are not as expensive as the typical single-family housing, but does that impact the way you would look at that business and that if someone can't afford the home, but rents are really moving up considerably, that maybe that just becomes more attractive even with the greater risk involved?
I'll jump in on this one, Mark. It actually is better for our home sales model. It pushes that buyer that wants to own, instead of a stick-built house, they can now afford a manufactured home. When people raise rents outside of us, it directionally pushes them forward. It doesn't necessitate that we actually increase our rental fleet 'cause we don't want to do that in general. Again, we don't ever think we'll be out of the rental home business, but we'd like to see it reduce as a percentage of our overall long term because margins are less. But at the end of the day, it actually is the opposite net result.
When interest rates are rising outside of our industry, it pushes people to homeownership within our industry if you've got that model. Our customers' interest rates really haven't changed much, by the way. You know, they were not tied to the mortgage, the 30-year mortgage rate. You know, we have chattel loan mortgages on our homes when we sell them, again, typically financed by Berkshire Hathaway and some other vendors in the market. Those interest rates really haven't changed in the current period.
Okay, understood. Thanks so much.
Mm-hmm.
Thank you. Your next question comes from Scott Thompson from CIBC. Please go ahead.
Thank you, and good morning, gentlemen.
Hey, Scott.
Morning, Scott.
Hi. Wondering if you can give a bit of detail on the small, decline quarter-over-quarter in monthly average, rental rate, please?
Yeah, it's a product of the acquisitions that we completed. It's just the small decline.
Fair enough. Okay. Can you talk about what you're getting for rent increases on new leases and renewals? You still looking for 4%-5% annual increases or will this actually increase due to elevated inflation?
Typically our rent increases take effect in the first part of the year, typically January, unless it's an acquisition. Yeah, I think we were just a little over 5%. You know, all of our variable expenses are pushed through to the resident, either through sub-metering for water and sewer. They pay their electrics directly to the municipality, and even the property taxes. What I would say is, you know, the inflationary pressures that everyone's talking about, they are being borne by our residents right now. But we don't have to adjust our rents aggressively because they're already paying that outside of our income statement. I would think that, you know, again, in this current market, we could still.
Our guidance of 4%-5% is good guidance. It might be on the higher end of 5%, but I don't think, you know, we have to raise our rents, you know, double digits to keep up with inflation. They're already paying the inflationary expenses.
Thank you. Your next question comes from Kyle Stanley from Desjardins. Please go ahead.
Thanks. Morning, guys.
Good morning, Kyle.
Morning, Kyle.
You mentioned a strong track record of operating through previous economic downturns. I'm just wondering, during those periods, how did your rent growth trend? I mean, you know, we just talked about still achieving, you know, potentially even at the high end of your kind of 4%-5% target. I'm just wondering if that maybe slows down in you know, times of economic uncertainty.
Well, I think again, it was. When you look back, you know, every recession looks different for different reasons, and we also had a couple of industry cycles going back to, like, 1999. We have been around the block for a while. The key thing about these rents is that, you know, are people working? The answer with our residents is they are. About 40% of our residents, again, are on fixed income, Social Security Disability, maybe a pension plan. These are all, in general, primary residences in our portfolio. Again, that's the kind of the general demographic. Do you have to raise it more aggressively? You really don't.
The benefit to what we've got going on right now, again, is these inflationary expenses are outside of us. Historically, I'm sure we raised rents probably at the higher end of the spectrum. The key thing is we were able to do acquisitions during those periods, and we were able to grow occupancy. Again, you know, the secret is it's like a three-punch, right? The first one is the way you get your return is you get that 5% rent increase on the same store, which we proved we can do. The second one is we get occupancy growth, same store, which we proved we could do. Then Nathan comes in for the final with the acquisition.
I think that same thing all works to a strong level in these environments right now, especially. You know, we structured our balance sheet to come in and take advantage of some of these opportunities.
Okay, great. On the acquisition side, I mean, where would you be comfortable taking leverage to facilitate some of the acquisitions that you mentioned you're looking at in the third and Q4?
Eddie, you want to take that?
Yeah.
You clicked out a little bit, Kyle.
Sure.
I didn't hear the whole question.
Yeah, I got it. Yeah, so I mean, you know, the guidance we've given is 45%-55%. Like I said, right now we're at 40.4%. You know, at IPO, we were at 49.8%. I don't really envision us going much more than that. But you know, that's kind of where we're comfortable.
Okay, fair enough. That makes sense. Then just last one for me. You know, can you talk about any changes you've seen in the manufactured home sales markets since maybe we last spoke? Or, you know, has there been. You know, I think your relationships with the home builders have made it possible to you know, keep access to the homes despite the supply chain issues. Just wondering if you know, access to new homes has changed at all.
Well, Kyle, you know, I have been saying for basically 18 months that we were not having this huge surge that people were talking about in home sales. You were hearing some supply chain issue because people were making irrational purchases of manufactured housing. I think that those people probably, as I say, they got their lots full or their belly full of a lot of homes. If you know, as I drive around the Midwest and the Upper South, which I do a lot, I see that the traditional retail locations on the side of the roads that sell manufactured housing into the rural areas or into suburbia and do land home, they have plenty of homes.
My guess is you're going to see some of the big three, which I call Clayton, Skyline Champion, and Fleetwood, which is basically Cavco. You're gonna see that there. There's gonna be pressures on them to bring the price of their homes down because the supply chain is getting better, and they are having a tough time selling to the retail locations. If you want a house right now, compared to three months ago, we never had that issue because we're kind of like been so involved in this for so many years. Right now you can get a house in one week if you want it.
Okay, that makes sense. Thanks for the color. I'll turn it back.
Thank you. Your next question comes from Brad Sturges from Raymond James. Please go ahead.
Hi. Good morning, guys.
Good morning, Brad.
Just on the occupancy side, I guess quarter-over-quarter for the same property portfolio, I guess was up kind of 90 basis points. It's a little bit, I guess, higher than kind of the guidance you've been giving in terms of full year occupancy improvements. Do you see a little bit more of a faster pace on the occupancy improvement side, or are you still kind of sticking to 200-300 basis points for the year on a year-over-year basis for improvement?
I think we should stay with our current occupancy, you know, guidance, 200-300 bps. I still think that's the proper guidance. You do go through moments where you can do a little bit better from time to time, and I hope this is one of those going forward. You know, you don't wanna. We're kind of big on underpromising and over-delivering.
There's also some seasonality to the sales process that would be affected by, you know, that would make that look better maybe in the Q2, you know, when the sales kind of start to slow down a little bit in the July time period. You're gonna get a little seasonality of that there, which would, you know, result in a little higher pickup in that Q2 versus some of the future quarters.
Just to go back to your previous comments, I guess, you know, as you're looking to do the rental home sales, are you assuming a little bit of a faster pace going forward that you can achieve, or are you just assuming still that you can sell, you know, kind of a home a day type thing?
Well, we.
Yeah.
We are not seeing a.
Go ahead, Nate.
Yeah, we are not seeing a downturn in home sales at our properties because remember, we're the entry level. Actually, we're seeing a little bit more activity because as the interest rate has moved up, that pushes people down. You know, we're also. We've seen a little uptick, but not as much in our interest rate because it's always because the chattel mortgages are a little bit higher. We have not seen a deterioration in our markets at all. I think there are some markets that are having tougher times than others. You know, we are not seeing that as much. Remember, you know, we're entry level, middle America, upper South housing, you know. A little bit different than if you're, you know, doing other things.
As far as selling rental homes, Brad , I think we kind of assume the same pace that we would before is we'd like to get. You know, right now our rental homes are about 10% of our total number of lots. You know, obviously we've expressed that we want, we wanna continue to drive that lower. And you know, a good rule of thumb is hopefully we can decrease the by 10% a year.
Okay. Consistent pace still. I guess the last question for me, just on the couple of acquisitions in the quarter. Can you comment about going in yield or cap rates? You know, I'm assuming there are some bread and butter opportunities in terms of driving additional value beyond that initial yield.
Yeah. Cap rates on Nathan, if you don't care, I'll talk a little bit to the cap rates.
Yeah, please. Please.
Going in cap rates, again, different because of the different markets. The acquisition in Northern Kentucky was. It's probably the physically hottest location maybe in our portfolio, with where the location is at. And there was a decent amount of competitive pressure there. You know, that cap rate was gonna be slightly subsidized. When we're in Riverton, Illinois, that's a little better cap rate. And you know, you're looking between 5% and 5.5% there. You know, still to Nathan's point, it's still a competitive market. These assets are just so hard to come by.
Obviously, these relationships that Nathan's fostered over the last 27 years have still enabled us to get our foot in the door and to get these opportunities before they go to brokers. But you still pay for them. You know, it's a great business with a lot of competitive pressures, but the cap rates seem to be kind of holding pretty steady.
Okay. That's great. I'll turn it back. Thanks a lot.
Thanks.
Thank you. Your next question comes from Himanshu Gupta from Scotiabank. Please go ahead.
Thank you, and good morning.
Good morning, Himanshu.
Looking at the recent debt financing, I'm looking at the Fannie Mae credit facility at the 5.79% interest rate, a bit higher compared to the other financing. Is this the cheapest source of financing available in the market now?
No. It was a little different model than what we've looked at before. This is an addition to our Fannie Mae credit facility, and these were effectively second mortgages on the properties within that facility. It's a little different structure than we've had on our other financings. With that being a second mortgage on the existing properties, it's gonna drive the rate up, you know, somewhat. The more recent financing that we closed with the Life Co, which is, you know, kind of back in the normal down the middle financing that we've done, is probably more indicative of where rates are today.
We're still seeing, you know, rates between 4.5% and 5% for 20-year fixed rate debt that we can get with Life Co. Really that's been enabled by the REIT capital structure. You know, as long as we're putting less than 50% debt in place on these assets or less, we're still seeing pretty competitive rates in the market.
Got it. Okay. Typically you can get financing at 4.5%-5%, that's the range. Have you seen transactions where cap rate has been below the cost of debt? I mean, are buyers still able to make the math work in those cases?
I'll just speak to the financial part of that. We've seen folks doing cap rates that are below cost of debt. We generally don't participate just because, you know, we're looking for those accretive acquisitions out there. It depends on what the opportunity is on the other side of the acquisition. If you see a going in cap rate on seller's numbers that's slightly below the cost of debt, but you know that there's a lot of opportunities, whether it's sub-metering or rent growth or occupancy growth or just other things within that business that you can change to drive growth, then yeah, maybe that's something you're willing to do. That would kind of be the only.
Yeah. We don't do those regularly, but you do find some, don't you? That, you'll go in, and if it's a mom and pop, maybe the things that they were doing, how they operate their business, and if you go in on their numbers, it would be in a situation that might be a negative, but then you would quickly be able to fix it in the first six months, and it would become accretive pretty quickly, if that makes sense. Sometimes they're doing things like if it's not sub-meter would be one of them. You know, that if they're including the water, sewer, the garbage and the sanitation and the rent, you can get, you know, that could be a problem till you get it fixed.
Got it. Yeah.
Well, Himanshu, I'm sorry for interrupting, but I think the guiding light in this is never forget that we still own 28% of our stock, and so we want accretive acquisitions. I mean, it's our. We have complete alignment. We still. If.
Yeah.
I don't know what else to say. We have complete alignment.
Got it. Thanks for the color there. Talking of accretive acquisitions, I'm looking at the NOI margin on your acquisition portfolio. That's like 64%. Your same community NOI margin is like 67%. There's further opportunity out there on the acquisition portfolio to improve it further?
Oh, yeah. Absolutely. You know, integration of acquisitions is an art. It's a talent. It takes a little time, especially, you know, if you start talking about value adds, and, you know, the deeper the value add, the more time it takes to get that margin where it needs to be. Each community is different. You know, the community in Riverton, Illinois was had a lot of rental homes. The two in Florence had no rental homes. You know, it's more about capital improvements and sub-metering, which improves the NOI margin. Yes, we've got plenty of room to run there on the acquisition margin.
Okay. Just switching gears, looking at the rent collection this quarter, a bit slightly lower compared to the previous quarter. Is there anything to read there? Any thoughts?
Yeah. I've looked at it. I was involved in it the whole time. You know, during COVID, the truth of the matter is I don't understand why anybody was ever late on anything. I mean, the government basically stepped in.
Yeah.
Helped everybody. Again, I had a really hard time understanding how anybody was late on anything in the United States. Those programs are beginning to end, so I call this a little bit of normalization. I don't think it's a needle mover of a number, but I think some of those programs are ending and, you know, there are some people that need to go back to work. I think later on first.
As a general rule, June and July can be the toughest months to collect your rent. You know, as we say, you know, it gets people. That's when people start taking holidays, and sometimes you're their holiday, you know, ATM.
True.
I agree with Kurt 100% on that. Kurt and I've been in this 27 years, and that doesn't surprise us.
Got it. You know, in the last recession, like, what happens to the rent collection? Like, you spoke about, you know, rent growth still continues to be there. You don't see much occupancy erosion. Do the sitting tenants, they, I mean, they default or, you know? Have you seen any pickup in bad debts during the last recession in the asset class?
No, excuse me. It's actually the opposite. If you think about the current environment, there is just no place they're gonna go cheaper. I mean, other. Again, other than mom's couch, right? That's what we always say. Other than government-subsidized housing, there is no place more affordable than our communities, especially once you get your home paid for. Again, the blessing of our communities is that we've been selling homes on short amortizations for 20-plus years. We think about 75% of our rental customers on the land don't have a mortgage on their home. Again, that means they've only got their lot rent. I mean, so you can't go someplace cheaper for them, so they should pay their rent, is the moral of the story.
If you were talking about a recession in our markets where unemployment was 15%, that's a different conversation and we don't anticipate that. We've never seen anything like that. In the last recession, no, we did not have a collection problem. And in the current inflationary environment, I actually think, again, it's the opposite problem. I think people are going to be looking for more affordability because, you know, gas is $5 a gallon versus $3 and groceries are up 30%.
All right. Fair enough. Last question from me. What was the same community lot rent increase in Q2? I did not see that in the disclosure. Sorry if I had missed out.
Yep. Hey, no problem. We went from about $362 to $384.
No, this is same community or this is the total, lot rent?
In Q2, if you're looking quarter this year versus last year, it was 362-384.
Okay. That's the same community. That's not total lot rent.
Correct.
Okay, that's about it. Yeah. Thank you, guys, and I'll turn it back.
Thank you.
Thanks, Himanshu.
Thank you. Your next question comes from Scott Thompson from CIBC. Please go ahead.
Oh, hi. Sorry, I cut myself off on the previous questions, but I was gonna ask.
We thought it was us, Scott.
Fat fingers. No, no, it was. It's not you, it's me. I was gonna ask questions on the rent collection, but Himanshu, you covered it with Himanshu's questions, so I'll turn it back. Thanks.
All right. Thank you.
Thank you. Your next question comes from Tal Woolley from National Bank Financial. Please go ahead.
Hey, good morning, gentlemen. How are you?
Hey, Tal.
Good morning, Tal.
We're good. In May, I believe, President Biden sort of announced some policies around stimulating manufactured housing, and I apologize if this was asked earlier on the call. I had to join a little late.
It was not.
I'm just wondering if you could sort of give a rundown of what you saw in that and what if there's anything there that could be helpful longer term.
I have heard other people comment that they think it's the best thing since sliced bread. I think it will have zero impact on us.
What were the key proposals? I saw, like, some headlines in the journal and stuff like that, but I didn't really get an idea of what the nitty-gritty is. What are some of the things that are being proposed?
Well, one of the things they've been talking about there is that Fannie Mae or Freddie Mac or some government agency will back the loans, and you'll go into 30 years and blah, blah, blah. I call it and it's all pipe dreams and unicorns and rainbows and tulips, and it'll never happen because they do this about every 10 years. They do this same rigmarole, I call it, and it never comes to fruition.
Why do you think that. We've been tricked before, Tal. We're tainted, Tal. We've sat in meetings with them. We've been tricked before.
You know.
It's a snipe hunt, everybody. If you don't know what that means, go look it up. It's a snipe hunt.
I've heard other people talk about how great it's going to be, and I've just never seen them ever get to it. You know, here's what, Tal. One of the things that they also put in there, that you are going to give a 30-year lease to a person on a piece of property. I just don't ever see us doing a 30-year lease. I'm sorry.
Yeah. You know, they're calling for more actual manufacturing of the homes as was another provision that was there.
Right.
Nathan spoke to it earlier. I mean, the manufacturing
It.
I mean, it's there.
It's there.
Yeah.
You can get a house printed. I mean, here's the situation, Tal. Last week, a certain two or three plants that I know of across the country actually had two off days. Another plant I know dropped a house a day of what they were going to build. There you go. You can get a house now. It was all, you know, unicorn and rainbows, I call it.
It's sort of like the cicadas, the unicorns emerge once every 12 years.
Right.
Got it.
Yes.
Pull in the calendar.
I'm gonna start using that. Absolutely, I am gonna start using it.
Okay.
If we're wrong, Tal, and everybody else is right, if we're wrong, God bless them.
Yeah.
We will be able to change on a dime, but right now we've got month-to-month leases, and so does most of the industry. You know, I don't. Again, if it changes, God bless them, but we don't think so.
Okay. Just the last thing with the at-the-market program. I appreciate like, you know, given where the stock is that it's probably not something you're like dying to use right now or anything like that, but have you thought about like when it would be appropriate? Like, when to tap, like when should we, you know, sort of sit there from the outside and go like, "Oh, yeah, that looks like something they would use it for." It would seem to me like size would be the primary thing that would dictate when you would use it.
Yeah.
The size of it we're looking at.
I think timing. The beautiful thing about it is we have alternatives. You know, we'd like to reduce our debt, truth be known, and we've said that on previous calls. It's pretty hard to do that when you're growing your portfolio in a time where the market has decided to throw you in with, you know, office, you know. We're not. We also get combined with multifamily, which is at least closer, but it's still not the same because most people have month-to-month leases. Yeah, I think timing's important. Don't look for. We won't be out there doing anything silly. You know, we're really respectful of and appreciative of our institutionals and our investor base and our retail investors. We're only gonna do things that are accretive.
We may access the ATM if the market, you know, straightens up. You know, between now and then, it's just full steam ahead. We're just gonna grind out our returns and take care of business and when the market straightens up, you know, we'll probably do something.
Okay. Sounds good. Thanks, gentlemen. Appreciate it.
Thanks, Tal.
Thank you.
Thank you. Just a reminder, ladies and gentlemen, should you have a question, please press star followed by the number one. Mr. Keeney, there are no further questions at this time. Please proceed.
Thank you, operator, and thank you everyone for participating. Please feel free to reach out to our investors team, investor relations team at ir@flagshipcommunities.com if you have any further questions. Thank you and have a great day.
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