Flagship Communities REIT (MHCUF) (Q2 2026) Earnings Call Highlights: Strong Revenue Growth and ...

Q: On the same-property NOI margin decrease, can you quantify the difference between the seasonal weather impacts and the impact of more amenities feeding into it? A: Eddie Carlisle (Chief Financial Officer): The biggest driver was water and sewer recapture. Last year, we were in the 95%-97% range on recapture, but for the first four and a half months of this year, we were below 90%, which significantly impacted margins. We got back over the 90% threshold at the end of May and into June. Additionally, ancillary revenue like cable agreements is a thin-margin business that puts pressure on margins. If you exclude those two items, we would be back over 65.5% margins, which is where I expect us to trend moving forward.

Q: How should we be thinking about lot increases for January 1st? A: Kurt Keeney (President and CEO): It's a little early, but historically we've guided 4% or 5%. We're still in that range. The Midwest markets are very stable economically. Apartment rents are still going up 5% annually, and we still have a $300 to $500 disparity between us and apartment rents. I don't see anything driving us out of our guidance.

Q: On the occupancy side, you've had a strong start to the year. How are you feeling about further occupancy growth into the balance of the year as home sales season starts to slow seasonally? A: Kurt Keeney (President and CEO): Ending the second quarter up 2% year-over-year is a good place to be. Heading into the fourth quarter with the holiday schedule, you don't move occupancy a lot. If we can hold on to our occupancy gains throughout the rest of the year, I'll be very pleased. We've always guided 1% to 2% same-community occupancy gains year-over-year, and I think we'll be towards the high end of that range. There's no problem with demand; it's just cyclicality in the fourth quarter.

Q: You've been more active in buying homes to rent out on your properties. How are you finding this program, and is this something you could do on other properties to take advantage of excess land? A: Kurt Keeney (President and CEO): We put 224 rental homes into the fleet in the first six months of the year, but we don't look to continue at that level. We bought some nice locations last year, and 53% of our locations are at all-time highs on occupancy. Sometimes you need a rental home to make the last few empty lots economic or to change curb appeal on value-add properties. We sold 39 older units and will continue to sell off older ones. This is not a change in strategy; it's a tool we use and try to minimize. We're still a homeownership model with 88% of customers being homeowners, and we have 500-lot communities with no rental homes.

Q: You're running at 11% or 12% of lots as rental homes, which is higher than the threshold you've typically talked about. How much comfort do you have in pushing out more to drive occupancy, or should we think about that percentage coming down? A: Kurt Keeney (President and CEO): My personal preference is for that number to come down, but it takes time. We need to high-grade the rental fleet and sell off older units. We put 224 in and sold 39 in the first half, so the percentage went up. We'd like to drive it back closer to 10%. It's also dependent on what you buywe bought $75 million worth of properties in Q4 last year, and some of those in Ohio required rental homes to change curb appeal. The strategy hasn't changed; we'd like it closer to 10%, but we're a little over at about 11.5%.

Q: Looking at the IFRS NAV, your cap rate is just under 5%, and the U.S. 10-year Treasury is around mid-4%. At what point do we start seeing cap rate expansion? A: Nathan Smith (Chief Investment Officer): In my 31 years, manufactured housing communities have always traded between a 5 and 7 cap at both high and low interest rates. I've seen 8 or 9 caps, but that's usually a heavy lift. Historically, they trade inside that box. Eddie Carlisle (CFO): This asset class seems less sensitive to interest rates. We evaluate our IFRS NAV and cap rate quarterly with third parties, and as of now, there hasn't been much movement. There aren't many transactions trading right now, so maybe we see that break loose, but it just hasn't moved much.

Q: Is the lack of transactions due to a disconnect between buyer and seller expectations? A: Nathan Smith (Chief Investment Officer): Maybe a little bit. It's a slower quarterwe've done two deals, so it's not like we haven't been active. We've seen deals, but they're just not closing. It's not a "hurry up and sell" situation; it's a slow roll even on the communities we're talking with.

Q: To close $100 million of acquisitions in a year, how much typical volume do you need to see in your pipeline? A: Nathan Smith (Chief Investment Officer): It's not that way at all. It's not like apartment buildings where you look at 40 or 50 to buy 7. It's normally about a person's situation changing and needing to sell. Last year, we were in the middle of three deals and closed two. Some deals come in the door and I never even look at them. Kurt Keeney (President and CEO): We get a lot of "soft calls" that don't hit the open market because Nathan has been networking for 31 years. We have a reputation

For the complete transcript of the earnings call, please refer to the full earnings call transcript .