Hello, ladies and gentlemen. Thank you for standing by. Welcome to the Flagship Communities REIT third 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. To ask a question during the session, please press star one one on your telephone.
To withdraw your question, please press star one one again. 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 risk and uncertainties. Actual results may differ materially from the views expressed today.
For further information on these risks and uncertainties, please consult Flagship's relevant filings on SEDAR+. These documents are also available on the REIT's website at flagshipcommunities.com. Flagship has also prepared a corresponding PowerPoint presentation, which it encourages you to follow along with during this call. Now I'll pass the call over to Kurt Keeney. Kurt?
Thank you, operator. Good morning, everyone. Thank you for joining us today. Our strong performance in the first half of 2026 continued into the third quarter. We generated double-digit revenue and NOI growth and continued to see increases in Same Community revenue and Same Community NOI, which speaks to the strength of our core business and the stability of the MHC industry.
Our Same Community revenue of $27.5 million increased 6.9% over the same period last year. Same-community NOI was $17.9 million, an increase of 7.2% over the same period last year. Our same-community NOI margin was 65.1%, which was a 0.1% increase compared to the same period last year.
In addition to our strong operating and financial performance, we completed the strategic acquisition of a 125-lot MHC in our home state of Kentucky, which is consistent with our strategy of acquiring established communities with the occupancy upside potential.
Nathan will speak more about this during his remarks. Our success year-to-date helped provide our board with the confidence to approve a 5.9% increase in our monthly distribution to unit holders. This is the sixth consecutive year we have raised distributions. We are very fortunate to be in the position where we have been able to increase distributions every year since our IPO, all the while keeping our AFFO payout ratio below 50% and maintaining a conservative balance sheet.
As you can see from slide six, we have one of the strongest distribution growth records among Canadian REITs. Our distributions have generated 5.2% compound annual growth rate, and since our IPO, have increased by nearly 36%. The continued growth of distributions each year is just one part of our disciplined approach to allocating capital.
We also continue to pursue accretive acquisitions in our key markets, which will grow AFFO per unit and support distribution growth. At the same time, we announced our intention to launch an NCIB, which allows us to repurchase up to approximately 10% of our public float.
One of the main reasons for our success is our deep experience in the industry. This past month, Nathan and I marked our 31st year in the manufactured housing business, and the attributes that made the industry compelling back then continue to be true today.
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 eight of this presentation. NOI growth remained positive during the housing crisis and the Great Recession, and even 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, continued higher mortgage rates, and the general economic uncertainty. For less than renting a three-bedroom apartment, residents can own a home in our portfolio and build long-term equity.
That is why Flagship has remained a compelling alternative to traditional rental housing. With that, I will now turn it over to Nathan for his remarks. Nathan?
Thanks, Kurt. Good morning, everyone. Flagship started with one community and 152 lots. For over 31 years, a big reason for our success is our ability to retain residents in our communities and complete successful acquisitions. This past quarter, we bought 125 home sites in our home state of Kentucky for approximately $2 million.
The community is 54% occupied and is located in Frankfort, Kentucky, where affordable housing is in high demand. Frankfort is Kentucky's capital and home to major employers and the largest number of public administration jobs in the state.
Similar to past acquisitions, we are planning to add new amenities to enhance the resident experience. Planned improvements include a new clubhouse, an office, a basketball court, and playground. By investing in new amenities, we believe residents are more likely to stay in our communities.
By continuing to improve infrastructure and community engagement initiatives, we are helping to support a positive experience and the long-term retention of our residents. This acquisition is also an example of how we are able to grow and realize efficiencies in our markets.
This MHC is near four Flagship-owned communities in Kentucky, which will allow us to manage these properties effectively. We continue to take a disciplined approach to acquisitions while focusing on strong organic growth and delivering value for our unit holders. With that, I will turn it over to Eddie to review our financial results in more details. Eddie?
Thanks, Nathan. Good morning, everyone. During the third quarter, we continued to generate solid financial results from our organic portfolio while maintaining a strong and stable balance sheet. Revenue for the quarter was $30.7 million, an increase of 17.6% over the same period last year due to acquisitions as well as lot rate increases across the portfolio.
Same Community revenue of $27.5 million for the third quarter grew by approximately 6.9% 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.
Net operating income and NOI margin were $20 million and 65.3% compared to $17 million and 65% during the same period last year. Same Community NOI margin for the third quarter was 65.1%, a 0.1% increase over last year.
FFO adjusted and FFO adjusted per unit for the quarter were $9.9 million and $0.39 respectively, an 8.2% and 6.8% increase respectively compared to last year. AFFO adjusted and AFFO adjusted per unit for the quarter were $8.9 million and $0.35, a 6.3% and 5.1% increase respectively compared to last year.
Same Community Occupancy of 85.2% increased 1.8% from the end of last year, and rent collections for the quarter were 99.2%, demonstrating the strength and consistency of the MHC sector.
As at September 30, our total lot occupancy was 84.6%, 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.
Our weighted average mortgage interest rate was 4.54%, and our weighted average mortgage term to maturity was 7.6 years. We have no substantial debt maturities until 2030. We had total liquidity of approximately $30.9 million. The REIT currently has 18 unencumbered investment properties with a total fair value of approximately $106 million as at September 30, 2026. With that, I'll now turn it back over to Kurt for some final remarks. Kurt?
Thanks, Eddie. As 2026 draws to a close, I'm proud of what our team has delivered. Through the first nine months, we grew Same Community revenue and NOI, added new communities in our core markets, and our board approved our sixth consecutive annual distribution increase. Our priorities headed into next year are the same ones that got us to this point.
We expect to continue investing in the resident experience while enhancing our operational efficiencies, and we will continue to prioritize returning capital to unit holders from a position of financial strength with a conservative balance sheet and no substantial debt maturities until 2030.
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 toward manufactured housing because our homes remain affordable. Thank you for your time today, and I will now open up the line for questions.
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from the line of Mark Rothschild with Canaccord. Your line is now open.
Thanks, and good morning, guys.
Morning, Mark.
Hey. On the same property NOI growth that picked up a little bit this quarter from what we see earlier in the year, it does not appear to be really from occupancy and the rental rate increases went through earlier in the year. Assuming it is more on ancillary revenue, can you just talk a little bit about what maybe have picked up this quarter and if this is a trend we should see continue?
Yeah. Eddie, you want to jump in?
Sure. Yeah. Mark, the real driver there is, the first two quarters this year was kind of well-documented. We talked a lot about the issues we had due to the winter weather with utility recapture, kind of a lot of the maintenance, repairs and maintenance. In the third quarter, that has kind of been solved.
We have got now utility recapture back over 90% for the first time this year, and margins now trending back up over 65%. That is the biggest piece of that. Ancillary revenues have slightly increased, but yeah, I would expect the, assuming we do not have some extreme weather issues again in fourth quarter, I would expect that growth and kind of margin increase to be there in Q4 as well.
Okay, great. Thanks. Maybe just one more from me. On the acquisition front, at times you have commented on private equity coming in and out of the business. How do higher bond yields impact how you feel about that and how you see deal flow?
Do you see them maybe just dropping out because the numbers do not work, or is it maybe deals just will not be less attractive for you as well with the higher interest rates?
Well, I guess, Mark, what I would say to that is we are seeing very little private equity right now because of just exactly what you just said. We have actually done three acquisitions this year, and hopefully we will have some more if we are lucky. But what we are really seeing out there is really the industry is not having a lot of acquisitions because of the interest rates.
Private equity is having a difficult time, and obviously we are looking for accretive deals, and we have done three accretive deals this year, so we will continue to look for those b ut we are seeing deal flow out there being very light amongst everybody else, really.
Okay, great. Thank you so much.
Thank you. Our next question comes from the line of Jonathan Kelcher with TD Cowen. Your line is now open.
Thanks. Good morning.
Morning, Jon.
I guess it is sticking with the acquisitions. It sounds like it is just a slow period right now. Would that mean for next year we are going to expect similar size acquisitions that you did this year, like smaller sort of $5 million-ish, plus or minus?
Well, this industry has always been built on singles and doubles. I think you will always continue to see singles. We look for mom and pops to exit, and you have to take those when they come, and that is where we are at right now. We have done three this year, but we are a lot of single business.
This is not an industry where you are going to buy 25 properties. It is just not going to happen. It is built on singles and doubles, and we will keep doing it that way.
Okay. Fair enough. Then just on, I guess on the occupancy and the revenue side, have you published or said what your rate increase is going to be for next year? Secondly, how much do you think you can push occupancy on a same property basis?
Yeah, we actually did. We have actually posted and notified our residents of the rent increase in 2027 already, so it is public. It is 5.6% on average globally and about $29. I think that is a and again, we always kind of have a normal range of 4% or 5%. This year it is 5.6%.
We are very thoughtful about trying to be self-regulated on the rent. No, I think that it has been out now for a couple of weeks. On the occupancy front, again, we kind of guide 1%-2%. I always think from a modeling perspective, 1% is the right way to model it, because we will turn over units and high-grade the community's inventory. Just as a reminder, 75% of our customers own their house free and clear. They are not rentals.
You have to kind of deal with that as they turn over in the fullness of time. As we turn those units over, that is always a little headwind as we are making the rest of our occupancy gains, because you cannot let 1972 Windsor stay in the community.
Okay. That is very helpful. I will turn it back. Thanks.
Sure.
Thank you. Our next question comes from the line of Himanshu Gupta with Scotiabank. Your line is now open.
Thank you, and good morning.
Morning, Himanshu.
Just on the expectation of rent increase, I think you mentioned 5.6%, occupancy gains of 1%-2%, and something which you have said over many years now. Does that mean that, I mean, the setup is still there for, again, rather there for high single-digit same store NOI growth for next year?
Yeah, I think that's exactly where we're at. I'm sorry, Eddie, you want to go ahead?
No, no, go ahead. I apologize.
Oh, yeah. I think it is exactly where we are at. I mean, the beautiful thing about what Nathan accomplished for us in the last two years is he has purchased the vacancy we need for the next two or three years.
Literally, we can drive our NOI, and that is what we are doing. If we just show up, go to work, and be who we are. We do not need to be anything extraordinary. We just need to kind of execute our strategy, and we should have high single-digit, low double-digit NOI growth.
Awesome. Thank you. On this rent increase of mid 5%, and similar to last year as well, obviously, is that you being self-imposed? Do you think there is more capacity for the tenants to pay even higher rent growth here?
Well, the answer is you have to be self-disciplined. If you remember, in our leases, the residents pay their utilities directly. They pay for everything from their electric to their water, sewer, to their cable. There is inflation in all of those items.
When we look at that, we just want to be cognizant that the rent is only one part of their housing expense, because they do own their home most of the time. You look at it and you go, okay, is there more capacity? If you sit down with your Excel spreadsheet, the answer is yes.
We are $300-$500 cheaper than a comparable housing product in multifamily typically. That gives us runway, but that does not mean we should push that faster. Again, 30%-40% of my residents are on fixed income, Social Security, disability, maybe a pension plan. We want to make sure that those folks remain healthy. So, yes, the answer is yes, there's runway, but you should be self-disciplined.
Got it. Okay. The last quick one here. Maybe CapEx for the next year. How should we think about CapEx budget for next year?
We're going to cash flow. That's how we think about it. We look at it, and we look at our excess cash flow, which is $18 million or something like that. We will continue to deplete our rental fleet as we can. We will also have to high-grade our rental fleet a little bit as we can.
I think our CapEx right now is just growth projects, and we will use our capital, our net cash flow, $18 million-$20 million, we'll use that for growth initiatives b ut right now, I think we're in real good shape on the CapEx for next year.
Got it. Very helpful, and I'll turn it back. Thank you.
Thank you. Our next question comes from the line of Brad Sturges with Raymond James. Your line is now open.
Hey, good morning. Just following along the lines of Himanshu there, just on the growth projects, can you just give us an update on where you are from your lot expansion program and what could be delivered in terms of new lots over the next few quarters?
Sure. Morning, Brad. We've got two or three entitled developments right now in our queue lined up. I would expect we'd probably only put 50 lots from that online next year. I've said this many times, is that we are developers.
We know how to do this. We think the best use of capital a lot of times is not developing, but buying vacancy that's already developed, and that's what we've been doing. So, I think next year, 50- 100 lots, and I'd probably bet on 50 lots.
Okay. Just if the acquisition opportunities were there, just what is the capacity on the balance sheet today in terms of total capacity for new acquisitions?
Eddie, you want to jump in?
Sure, yeah. I think, Brad, we could probably do between $100 million and $125 million in acquisitions on balance sheet without having much of an issue. We do have, call it about $110 million of unencumbered assets right now on the balance sheet. Our debt to GBV's down this quarter to 38%, so certainly the capacity is there on the balance sheet to be able to go out and do the acquisitions as they come along.
Okay. At this point, you're talking about the market being pretty quiet. Do you have any indication on changes in pricing at all at this point?
We are seeing very little changes in pricing, but we've never seen wide swings in pricing in manufactured housing. That's what I mean, that question comes up all the time, and I appreciate the question b ut for nearly soon to be 32 years, I've never seen pricing change a whole lot in the MH business.
There are some pricing that you'll get that's higher, but it's also a really heavy lift. Most of it, as we've always said, trades somewhere between five and seven cap, and has and will continue to do, and for foreseeable future that I see. It's just a supply and demand issue.
Makes sense. Appreciate it.
I mean, not in our markets, Brad. Like, down in the If you get into Florida, I mean, the cap rates continue to drop and drop. So, I mean, that's a different-
Yep. Get ready for a three cap down there.
That's a different market. Yeah, you could be sub four cap there with a straight face b ut in our markets, that's not true.
Should. Yeah. Okay. So, appreciate that. I will turn it back. Thank you.
Thank you. Our next question comes from the line of Kyle Stanley with Desjardins. Your line is now open.
Thanks. Morning, guys.
Morning, Kyle.
On the utility recapture being back above 90%, as you mentioned earlier, was any of that due to anything operationally that you did, or is it really just fewer headwinds from weather? I guess if we make an assumption that the weather's a bit more benign moving forward, you kind of preserve that margin where it was?
Yeah,
Any of those things?
Yeah, certainly it was operational as far as getting those things back under control. We have a pretty sophisticated real-time leak detecting system. We have people that their job every day is to go out, find leaks in our communities, and get those fixed. So, a significant amount of work was done, but as far as what caused us to go kind of sideways in the beginning, it certainly was the weather.
I would like to say without any weather in the fourth quarter being too extreme, we should be able to maintain that 90% + recapture.
Okay. No, that's fair. It looks like you reduced the rental fleet by about 70 homes versus the second quarter. How are you approaching reducing the rental fleet with balancing occupancy, and where could you see the rental fleet, assuming no acquisitions next year, where could you see that rental fleet maybe trending through the year?
That's a fair question. I appreciate that. We're very We've got a home ownership model, and we've never guided that we will be out of the home rental business, because every time we buy an acquisition, typically we get rental fleet with it.
We really would like to guide it back down to 10% or less as a part of the overall portfolio of lots. We're a little over that right now. We're 11.5%, pushing 12%, I think. We'd like to guide it back down. It's really simple on the rental units. We sell them to the people that would like to buy them that are in them now. Typically, that's kind of in the tax refund season, which is coming up in Q1 of next year, in Q2.
We also are taking houses out and selling them that have age limits on them at this point, and just trying to reduce the rental fleet in general. Again, if I could get it sub 10% in the next year or two, that'd be nice.
Okay. Yeah, next year or two is a good target. Then just the last one, following the midterms, anything that you see positive or negative in terms of outcomes for your markets or portfolio more generally, or pretty much status quo? Just love your thoughts there.
Nathan, did you want me to take that?
Yeah, that is true.
Okay. Yeah.
Yeah, I do. Yeah, so, interesting enough, the midterms actually was probably pretty good to us because we have split government now in the Unites States a nd also, what you will find is that most of the Democrats that were elected in the Senate were from red states. So I would not expect that you would see some wide swings in rent control or anything like that, because they would like to be reelected one day.
If you come from a red state, I do not think you would start with some things like that. And also, the House, the same way. After the gerrymandering in the Unites States, basically probably 40 or 50 of those seats that the Democrats won are basically in, that were Trump-plus states, or Trump-plus districts, I should say. So I am not anticipating.
I am actually thinking the next two years, there will be a lot of thoughts about how we create more affordable housing, but that is a tall order, and it is not a quick fix in the United States. I hope that gives you some color.
Yeah. No, it does, for sure. Thank you very much. I will turn it back.
Thank you.
I think this is an area of mecca for us right now. Affordable housing is front and center, and this environment is very good for us. But go ahead. I am sorry, it is not for you.
Thank you. Our next question comes from the line of Dean Wilkinson with CIBC. Your line is now open.
Thanks. Morning, guys.
Morning, Dean.
I did actually have a follow-up along those lines. I think last month, the President signed an executive order that had a few things in there, but it established a task force looking at MHCs. What do you guys think is going to come out of that? And if they do do the right thing and talk to industry, what would you say to that task force?
Well, I would say to that task force is, I wouldn't get too excited about this if I was you. Here's the situation. The bill has a lot to do with the ability to take the homes and put them in urban markets, and that's what it is really about. I think a manufacturer will do actually very well there, but I'm not so sure that it will have a whole lot to do with our side of the business.
That's more like buying it, putting on a lot that I own, and not specifically going into a community.
Right.
Right. Okay.
The city infill and removing the chassis there can be beneficial. I just don't think that it is something that is going to have a big effect on the community business.
I would probably argue that it's beneficial to the community business because you're going to want all of the amenities that come with what you have when you have a community, as opposed to just one of these kind of sitting out in the middle of nowhere, no?
Well, I think you're getting a little bit confused there. It's city infill. They want to be able to take and put homes in an urban setting in a lot where they maybe had to tear a house down, and that's not something we do.
The problem with it is, they have to change the code to allow a house with a chassis in it, because a chassis is a HUD Code home, and they have removed HUD Code homes from the ability to place them in cities. So they'd have to even change that. So removing the chassis allows them to place a home on a scattered lot in an urban area, which really doesn't have a whole lot of effect to us.
Doesn't really crossover.
We don't even compete with that customer.
Yeah.
Yeah, we don't even compete with that customer. That would be a value add for the manufacturers, the three public manufacturers. But for us as a community operator, I see actually zero effect of that on us.
Okay, perfect. Thanks, Nathan.
I can-
Just one little bit on that.
agree with that too.
Yeah, and that makes sense b ut this whole thing about removing the chassis and making a home cheaper is a false narrative. Because if you think about it, Dean, what you're doing is now you're having to crane the house on.
Right.
You're going to have to have some kind of foundation that's more than a HUD Code foundation because you're removing the chassis. I mean, I actually think the house will get more expensive if you do that a nd Flagship Communities, we will not be removing any chassis.
We will not allow those homes in our properties either, because we think that it could have some effect. I wouldn't want to litigate having a removed chassis in an MH environment.
Wheels off, chassis on.
Wheels on, chassis off.
That is exactly right, Dean. Appreciate the fact you understand that.
We like that. Thank you.
Thanks, guys.
Thank you. As a reminder, to ask a question at this time, please press star one one on your touch-tone telephone. Our next question comes from the line of Matt Kornack with National Bank of Canada Capital Markets. Your line is now open.
Hey, guys. Just wanted to quickly touch on the rent. Good morning. The rental product, because presumably that's higher rent and maybe growing at a slower pace in terms of year-over-year growth or rental growth. So, is it kind of 2x the revenue impact versus the 12% of lots? Anyway, how we should ultimately think about that would be helpful.
Eddie, you want to jump in on that?
Yeah, I think the question, if I'm understanding right, is do you get the additional revenue on the rental homes? The answer to that is yes, we do rent increases on the homes as well.
In this year, it's going to be about 5% as well. So to the extent that you are renting the lot and the house, that 10%, 11%, we would expect to see on renewal, that to increase about 5% on the home as well. So yeah, that's going to have a bit of an additional driver for revenue growth there.
Okay. No, that's very helpful. Then maybe just on the margins, it looks like there's some seasonality into Q4. I do not know if that's ultimately the case, but do you typically see a bit of a pickup into Q4, or is it fairly stable? Then that 65% you mentioned, should we expect that that's a pretty good run rate for margins for 2027 as well?
Yeah, I mean, that 65% to me, as we think about it, is generally kind of my look at the high watermark there for us. We will have quarters when it'll be a little better than that, but the seasonal impacts. Q4 for us generally was when things get kind of quiet, so we're not cutting as much grass.
It's really all dependent on the weather, though. If we were to have a significant weather event, which generally in our markets, Q4 is not real bad weather b ut as long as we can keep the weather events out of Q4, that has a little bit of seasonality b ut yeah, to me, that 65%, if we can maintain that for Q4 in the next year, that would meet my expectations.
Okay, great. Thanks for that color.
Thank you. I'm currently showing no further questions at this time. I'd now like to hand the call back over to Kurt Keeney for closing remarks.
Thank you, operator, and thank you everyone for participating today. Please feel free to reach out to our investor relations team at ir@flagshipcommunities.com if you have any further questions. Have a great day.
This concludes today's conference. Thank you for your participation. You may now disconnect.