Market News · Samer Hatim · August 6, 2026

Flagship Communities REIT Q2 Revenue Beats Estimates as Occupancy and Cash Flow Strengthen

Flagship Communities REIT reported second-quarter revenue of $30.44 million, above the $29.20 million forecast, as the manufactured-housing owner posted higher occupancy, stronger same-community revenue and growth in cash flow measures. The stock slipped 0.7% to $21.15 in after-hours trading, leaving it near the middle of its 52-week range of $17.25 to $23. InvestingPro analysis suggests the stock remains undervalued at current levels, with a Fair Value estimate indicating potential upside—placing it among opportunities on the platform’s Most Undervalued stocks list.

Key Takeaways

Revenue beat estimates by 4.25%, helped by acquisitions and higher lot rents.

Same-community revenue rose 9% from a year earlier, while same-community occupancy reached 85.4%.

Adjusted FFO increased 10.2% and adjusted AFFO rose 8.3% year over year.

NOI margin narrowed because of water and sewer recapture issues and lower-margin ancillary revenue.

Management said margin pressure should ease as recapture rates normalize.

Company Performance

Flagship said it had another strong quarter, with rental revenue up 21.4% year over year and total NOI rising 18.9% to CAD 19.8 million. The REIT, which owns manufactured housing communities, said growth came from both acquisitions and organic gains in its existing portfolio.

The company’s same-community revenue rose to CAD 27.3 million, supported by higher monthly lot rents, ancillary revenue and better occupancy. Same-community NOI increased 6.3%, but the margin declined to 64.9% from 66.6% a year earlier.

The quarter showed the strength of the manufactured-housing model, which has benefited from demand for affordable housing. Management said the sector has grown about 4% a year for more than 20 years and has held up well through several economic downturns.

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Financial Highlights

Revenue: $30.44 million, up 21.4% year over year on rental revenue growth.

Same-community revenue: CAD 27.3 million, up 9% year over year.

NOI: CAD 19.8 million, up 18.9% year over year.

NOI margin: 65.1%, down from 66.6% a year earlier.

Same-community NOI: up 6.3% year over year.

Same-community NOI margin: 64.9%, down from 66.6% a year earlier.

Adjusted FFO: CAD 9.9 million, up 10.2% year over year.

Adjusted FFO per unit: CAD 0.389, up 9% year over year.

Adjusted AFFO: CAD 8.9 million, up 8.3% year over year.

Adjusted AFFO per unit: CAD 0.349, up 7.1% year over year.

Market Cap: $356 million

P/E Ratio: 3.88, reflecting a low earnings multiple

Return on Equity: 20% over the last twelve months

Dividend Yield: 3.09%

Earnings vs. Forecast

Flagship beat the revenue forecast by $1.24 million, or 4.25%. The company did not provide EPS figures in the data available, so the comparison with Wall Street expectations is limited to revenue.

The size of the beat was solid but not large. Investors appeared to balance the revenue outperformance against margin pressure and a modestly softer stock reaction. The result fits a broader pattern of steady operating gains rather than a dramatic surprise.

Market Reaction

The stock fell 0.7% after the report to $21.15. The move was small, suggesting investors did not see the quarter as a major positive or negative surprise.

At the current price, the shares are about 17.9% above the 52-week low and about 8.0% below the high. That places the stock in the upper half of its yearly range, but not near a breakout level.

The muted reaction may reflect a trade-off in the report: revenue and cash flow improved, but NOI margins compressed because of water and sewer recapture problems and a heavier mix of lower-margin ancillary revenue. According to InvestingPro Tips, the company is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of just 0.15. The platform’s Financial Health score rates Flagship as "GREAT" overall. Subscribers have access to 6 additional ProTips that provide deeper insight into the REIT’s investment potential.

Outlook & Guidance

Management kept a constructive tone for the rest of 2026. It expects same-community occupancy growth of 1% to 2% for the year, likely toward the high end of that range, though it noted that the fourth quarter is usually seasonally slower.

For January 1, 2027, the company kept its lot-rent increase guidance at 4% to 5%. Executives said the Midwest markets remain stable and that manufactured housing still offers a large affordability gap versus apartments.

Flagship also said normalized same-community NOI margins should return to about 65% to 65.5% once temporary issues fade. The company has raised its dividend for four consecutive years, demonstrating commitment to shareholder returns even through operational challenges. The company expects Q3 margins to be about 50 basis points lower than Q2 if weather remains normal.

On acquisitions, management described the market as slow and quiet, with few deals closing and no broad cap-rate expansion. It said it will stay focused on core markets and on deals that are immediately accretive.

Executive Commentary

“Flagship delivered another strong quarter of operating and financial results, driven by the continued success of our core business and the MHC industry,” CEO Kurt Keeney said.

“Our same community occupancy of 85.4% 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,” Keeney said.

CFO Eddie Carlisle said the margin decline was mainly tied to water and sewer recapture rates, adding that normalized margins would be closer to 65% to 65.5%. That suggests the company views the pressure as temporary rather than structural.

Risks and Challenges

Margin pressure from water and sewer recapture rates: this directly reduced profitability in the quarter.

Lower-margin ancillary revenue: cable and amenity fees help revenue, but they can dilute margins.

Slow acquisition market: fewer transactions may limit external growth.

Rental-home mix above target: the company wants the rental-home share closer to 10%, versus about 11.5% now.

Seasonal occupancy softness in late year: Q4 usually brings less momentum in resident growth.

Q&A

Analysts focused on acquisitions, rental homes, margins and occupancy trends.

On acquisitions, management said the market remains quiet and that it has not seen cap rates expand. It also said it will stay within its core geographic footprint and avoid new markets such as Michigan.

Questions about rental homes drew a clear answer: the company said the program is tactical, not a shift in strategy. Management wants to reduce the rental-home share over time, but it will still use rental homes to fill vacant lots and improve newer acquisitions.

Analysts also pressed on the margin decline. Management said the biggest issue was weaker water and sewer recapture rates, which fell below 90% for much of the first half before recovering in late May and June.

On occupancy, management said it expects to hold onto gains made in the first half, even as the pace of home sales slows later in the year. The company said demand remains strong and that the main issue is seasonal timing, not a lack of interest.

Full transcript - Flagship Communities REIT Unt (MHCu) Q2 2026:

Operator: Hello, ladies and gentlemen. Thank you for standing by. Welcome to the Flagship Communities REIT’s 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 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, which it encourages you to follow along with during this call. Now I’ll pass the call over to Kurt Keeney. Kurt?

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: 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.

Our success was largely due to the continued progress of our underlying business, which is how we expect to generate value for unitholders. We saw several notable increases in many key metrics, including our rental revenue, which increased 21.4% over the same period last year, our NOI, which improved 18.9% over last year, and our FFO adjusted and AFFO adjusted, which increased by 10.2% and 8.3% respectively over last year. We also continued to see strong growth in same-community metrics during the quarter. Same-community revenue grew by 9% over last year, and same-community NOI grew by 6.3% over the same period.

Our same community occupancy of 85.4% 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 six 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 Sawyier Pointe community in Georgetown, Kentucky. This is the fifth consecutive year that Flagship has won KMHI’s Community of the Year award, and Sawyier Pointe 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?

Nathan Smith, Chief Investment Officer, Flagship Communities REIT: Thanks, Kurt. 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 a 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 boat-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?

Eddie Carlisle, Chief Financial Officer, Flagship Communities REIT: 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. Revenue for the quarter increased by 21.4% over the same period last year due to acquisitions, as well as lot rent increases across the portfolio. Same-community revenue of CAD 27.3 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. Net operating income and NOI margin were CAD 19.8 million and 65.1%, respectively, compared to CAD 16.7 million and 66.6% during the same period last year. Same-community NOI margin for the second quarter was 64.9%, a decrease of 1.7% 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. FFO adjusted and FFO adjusted per unit for the quarter were CAD 9.9 million and CAD 0.389 respectively, a 10.2% and 9% increase, respectively, compared to last year. AFFO adjusted and AFFO adjusted per unit for the quarter were CAD 8.9 million and CAD 0.349, an 8.3% and 7.1% increase, respectively, compared to last year. Same-community occupancy of 85.4% increased 2% from the end of last year, which continues to reflect our resident-level focus, as Nathan mentioned earlier. Rate collections for the quarter were 99%, demonstrating the strength and consistency of the MHC sector.

As at June 30, our total lot occupancy was 84.7%, which also increased relative to the end of last year, and our average monthly lot rent was CAD 516. We remain focused on maintaining a strong and conservative balance sheet with an emphasis on long-dated fixed rate debt. During the second quarter, we increased our revolving line of credit to a total capacity of CAD 33 million, extending the term to three years and eliminating the half percent spread. In early July, we borrowed CAD 6 million as a supplemental borrowing to an existing CAD 10.7 million mortgage. The interest rate was amended to 5.39%, representing a blended rate of 4.98% under the existing mortgage and 6.12% for the supplemental borrowing, with no change to the maturity date. Our weighted average mortgage interest rate was 4.54%, and our weighted average mortgage term to maturity was 7.7 years.

We have no substantial debt maturities until 2030. We had total liquidity of $25.8 million, and we currently have 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 Kurt for some final remarks. Kurt?

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: 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 multi-family competitors, and mortgage rate increases have the potential to lead more people towards manufactured housing because our homes will 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. 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. I will now open up the line for questions.

Operator: Thank you. To ask a question, please press one on your telephone and wait for your name to be announced. To withdraw your question, please press * one one 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, Canaccord: Thanks. Good morning, everyone.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Morning, Mark.

Eddie Carlisle, Chief Financial Officer, Flagship Communities REIT: Morning.

Mark Rothschild, Analyst, Canaccord: Hey, can you just talk a little bit about the acquisition environment? It’s 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? How do you see that picking up over the remainder of the year?

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Well, Mark, we’ve done two so far this year. We have looked at lots of deals. We have not seen the cap rate expand. Many times, in some locations in the country, it’s contracted. We’ve seen very few deals close that we bid on or we were interested in. We continue to look, and we’re going to stay very focused on our area, and we’re not interested in doing something that’s not in our area right now. We continue to look. I looked at a lot of deals, just not many of them have not traded.

Mark Rothschild, Analyst, Canaccord: 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. How are you finding this program? I know it’s something you weren’t too excited about a few years ago. Is this more of an opportunity at something you could do on other properties to take advantage of excess land?

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Yeah. Hey, Mark. 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. We bought some really nice locations last year. Some of these locations, we have 35% of our locations are at all-time highs on occupancy. Sometimes when you get down to the last part of the community, when you get down to the last lots, the last 5%, you might need a rental home to help make some empty lots economic. On the new acquisitions, you might need a rental home to help change maybe the curb appeal if you’re buying 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.

It’s not a change in strategy at all for us. 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 minimalize it. We’re still a homeownership model. We’ve still got, I think it’s 88% of our customers are homeowners. We have 500 lot communities with no rental homes. We think that’s a good strategy.

Mark Rothschild, Analyst, Canaccord: Okay, great. Thanks so much.

Operator: Thank you. Our next question comes from the line of Jonathan Kelcher with TD Cowen. Your line is now open.

Jonathan Kelcher, Analyst, TD Cowen: Thanks. Good morning.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Morning.

Jonathan Kelcher, Analyst, TD Cowen: 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?

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Yeah. Effectively, Q1 was a rough quarter, and we talked about that pretty extensively then. Some of that actually bled 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%-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. That’s a big number. In the end of May and into the month of June was the first month that we had gotten back over that 90% threshold. 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, it’s a pretty thin-margin business, but a somewhat large amount of revenue.

It does certainly put some pressure on the margin there. If you take those two items out, we’re back over the 65%, 65.5% margins, which is kind of where I would expect us to trend moving forward. The impact of that water sewer was the biggest driver of that in Q2.

Jonathan Kelcher, Analyst, TD Cowen: Okay. Assuming Q3 has no weather impacts, margins probably down, what, 50 basis points?

Eddie Carlisle, Chief Financial Officer, Flagship Communities REIT: Yeah.

Yeah, I think that’s correct.

Jonathan Kelcher, Analyst, TD Cowen: Okay. Secondly, it might be a little bit early, but how should we be thinking about lot increases for January 1st?

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: You are right. It’s a little early for the conversation. Historically, we’ve always guided 4%-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. We’ve still got a great disparity, $300-$500 typically, if not more, between us and apartment rents all in if you own a home. I think we’re in the same general range. This is just a crazy stable time, actually. I don’t see anything driving us out of our guidance.

Jonathan Kelcher, Analyst, TD Cowen: Okay. That’s helpful. I’ll turn it back. Thank you.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Sure. Thanks, John.

Operator: Our next question comes from the line of Kyle Stanley with Desjardins. Your line is now open.

Kyle Stanley, Analyst, Desjardins: Thanks. Morning, guys.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Morning, Kyle.

Mark Rothschild, Analyst, Canaccord: Morning.

Kyle Stanley, Analyst, Desjardins: Just on the occupancy side, obviously, you’ve had, I think, a really strong start to the year. It does seem like obviously 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, I guess, 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?

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Yeah. I think when you look at the seasonality of the business, it’s great. When you end a second quarter and you’re up 2% year-over-year, that’s a good place to be. Especially as you head into the fourth quarter with the holiday schedule, you just don’t move occupancy a lot in the fourth quarter. I think if we can hold onto our occupancy gains throughout the rest of the year, I’ll be very pleased with it. Again, we’ve always guided 1%-2% same community operator or occupancy gains year-over-year, 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, Desjardins: Right. Okay, that makes sense. Looking to kind of hold the gains is probably-

Nathan Smith, Chief Investment Officer, Flagship Communities REIT: Yeah

Kyle Stanley, Analyst, Desjardins: the target at this point. Okay.

Nathan Smith, Chief Investment Officer, Flagship Communities REIT: I think that’s a reasonable thought.

Kyle Stanley, Analyst, Desjardins: Okay, fair enough. Nathan, in your comment, obviously you mentioned looking to continue growing, obviously in your existing markets. While we’ve been talking, I was just looking at Marblehead and looking at where it’s located relative to some larger markets in Michigan. Is Michigan a state you’d consider expanding into at any point?

Nathan Smith, Chief Investment Officer, Flagship Communities REIT: It is not right now. I would not put it on the radar at all right now.

Kyle Stanley, Analyst, Desjardins: Okay, fair enough.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Kyle, we think our runway in the current eight states could be $1 billion. Every time you enter a new market, there’s tuition to be paid. You just sometimes don’t know what it is. We’re real comfortable in our markets, and we think we could deploy capital, basically in our backyard.

Kyle Stanley, Analyst, Desjardins: Okay, that makes sense. Just the last one, obviously, there’s been a lot of media attention on the ROAD to Housing Act. I’ve seen some changes in there as it relates to manufactured housing. Just wondering kind of what your thoughts are on that, and maybe the impacts that may have on the market more broadly.

Nathan Smith, Chief Investment Officer, Flagship Communities REIT: Well, the biggest issue with that bill was that were we going to be put in the bill? They were going to address some affordable housing. We were removed from the bill and the communities. Really what we’re talking about, this is more of a manufacturing bill than it is a community bill. I think it’ll have actually little to no impact on the community business. Now, it may have some on the manufacturing business, roof and the chassis. I don’t know that there’s a huge savings as other people think. I will have to say, cleaning the bill up and putting all of the regulations at HUD instead of being spread out throughout the government could be beneficial to the manufacturers because they’re dealing with one agency now. That’s the only difference.

Kyle Stanley, Analyst, Desjardins: Okay. Thank you. I will turn it back.

Operator: Thank you. Our next question comes from the line of Brad Sturges with Raymond James. Your line is now open.

Brad Sturges, Analyst, Raymond James: Hey, guys.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Morning, Brad.

Brad Sturges, Analyst, Raymond James: Morning. Circling back to the, I guess the conversation around rental homes. I think you’re running at 11% or 12% of lots. I think that’s higher than what you’ve typically talked about in terms of a threshold of what kind of exposure you want to have. I’m curious of how much comfort you have in terms of pushing out a bit more just to drive occupancy or really we should be thinking about that number in terms of percentage coming down over the next few quarters.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Yeah. My personal preference would be for that to come down. That takes time to get it to come down. We need to high grade some of the rental fleet, and we’re selling off the older ones, and I think that’s a great strategy. Like I said, for the first half of the year earlier, I said, "We put 224 in, and we sold 39." Okay. The math means that the percentage was going to go up. We’d like to drive it back closer to 10. That’s just a long-term strategy, and it’s also a little dependent on what you buy, right? Nathan did a great job. We bought $75 million worth of stuff in the fourth quarter last year.

When you buy some of those, we bought three particular communities in Ohio, and you had to change some of the curb appeal and put some rental homes into the fleet. It’s a strategy that hasn’t changed. We’d like it to be closer to 10. We’re a little over it right now, probably 11 and a half, something like that. We still think it would be better to have more homeowners than renters, but we want to make sure that we’re taking care of the new assets that we purchase, too.

Brad Sturges, Analyst, Raymond James: In terms of acquisitions going forward, I understand you guys will be opportunistic in terms of what comes available, but in an ideal world, you’ve done quite a bit of value add, and you’ve got a lot of that in the portfolio. Would you be still comfortable doing more at this point and taking on more value add exposure, or would you have a preference more towards something a bit more stabilized, more core?

Nathan Smith, Chief Investment Officer, Flagship Communities REIT: I think it’d be per market is where we be at in the value add. There are some markets that we might not be interested in any more value add. There are other markets that we’d be very interested in value add. It’s just really by the market in that question.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: To be fair.

Brad Sturges, Analyst, Raymond James: Is this a big market that makes more sense for value add?

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: You don’t get a lot of optionality sometimes.

Brad Sturges, Analyst, Raymond James: Yeah, that’s true. Fair comment, Kirk.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: You can’t control when these deals come to market, right? They’re so sporadic. Sometimes you got to be a little uncomfortable when you’re going into the value add just because you’re not going to get another shot at it.

Brad Sturges, Analyst, Raymond James: I guess, is there markets that make more sense for value add for Flagship today? Is it more of the existing markets you already got a larger exposure to?

Nathan Smith, Chief Investment Officer, Flagship Communities REIT: We’re very happy in the markets we are on. There’s many people that listen to this call, and maybe we don’t want to share what market we’d be interested in doing that in.

Brad Sturges, Analyst, Raymond James: Sure. Okay, I’ll turn it back. Thank you.

Operator: Thank you. As a reminder, to ask a question at this time, please press 11 on your touchtone telephone. Our next question comes from the line of Himanshu Gupta with Scotiabank. Your line is now open.

Himanshu Gupta, Analyst, Scotiabank: Thank you and good morning.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Hi Himanshu, how are you?

Himanshu Gupta, Analyst, Scotiabank: Very good. Just looking at the IFRS nav-

I mean, your cap rate is just under five. U.S. Treasury 10-year is around mid-four or maybe slightly higher than mid-four here. At what point of time we start seeing cap rate expansion here? I know, Nathan, in your prepared remarks, you mentioned you haven’t seen much expansion in cap rates yet, any color there?

Nathan Smith, Chief Investment Officer, Flagship Communities REIT: Well, what I would say is most Manufactured Housing Communities in my 31 years have normally, I would say, have always traded between five and a seven cap. At high interest rates, low interest rates. Have I seen an eight and nine cap? Yep. I’ve seen it many times. Sometimes that’s a really heavy lift. You could see it, historically I’ve seen higher interest rates, lower interest rates, they kind of trade inside that box.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: The other thing that I would add there is certainly this asset class seems to be less sensitive to interest rates. So far as the rates have continued to increase. Frankly, we look at this very closely. We do it quarterly. We want to be conservative when it comes to our IFRS NAV and our cap rate. We evaluate it quarterly. We talk to third parties. We see, obviously, the transactions that are trading in the market. As of right now, there just hasn’t been much of a movement at all. To Nathan’s point, maybe at some point that starts to happen, because there’s not a lot of actual transactions that are trading right now. Maybe we see that break loose. As of now, it just really hasn’t moved much.

Himanshu Gupta, Analyst, Scotiabank: Got it. Obviously transaction market is slow, I think you mentioned as well. You have inquired also. Is that the disconnect between buyer and seller expectations here, which is leading to lack of transactions?

Nathan Smith, Chief Investment Officer, Flagship Communities REIT: Maybe a little bit. I think that sometimes it’s a slower quarter. We’ve done two, so it’s not like we haven’t. We’ve seen deals, but they’re just not closing. Maybe that is a disconnect. I can’t say what’s going through a family’s head. I definitely would say that it’s not a hurry up and sell under that situation. It’s a kind of a slow roll, even on the sales, on the communities we’re talking with people.

Himanshu Gupta, Analyst, Scotiabank: Got it. Maybe the last question. For you to close $100 million of acquisitions in any given year, how much typical volume you need to see? What’s your pipeline, which gets to $100 million of closing for the year?

Nathan Smith, Chief Investment Officer, Flagship Communities REIT: It’s not that way at all. It’s not that I need to see 49 properties to buy 10. It’s normally this person’s issue has changed and they need to sell. It’s just not that way, Himanshu. It’s not like apartment buildings. Apartment buildings are everywhere, and you say, "Oh, well, we got to look at 58 of them to get seven." We don’t think of it that way. Last year, we were in the middle of three deals, and we closed two of them. There’s some deals where we come in, they’ll come in my door, and I never even look at them. I’m like, "We don’t want that.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: I think the interesting thing is, Nathan, really, we do get a lot of what I call the soft calls, right? They don’t hit the open market, and that’s because Nathan’s been networking for 31 years. When you look at that, I think people have confidence in us, and partly because of this call, that we can close. We have a history and a reputation for if we sign a deal with somebody, we close, and we don’t retrade people. I think that means we can look at fewer deals, and they know they’re going to get to the end with us.

Himanshu Gupta, Analyst, Scotiabank: Thank you for the color. I’ll turn back. Thank you, guys.

Operator: 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.

Kurt Keeney, President and Chief Executive Officer, Flagship Communities REIT: Thank you, operator. We certainly thank everybody for participating today. Please feel free to reach out to our investor relations team at ir@flagshipcommunities.com if you have any further questions. Happy Thursday.

Operator: This concludes today’s conference. Thank you for your participation. You may now disconnect.

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