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Operator: Hello, ladies and gentlemen. Thank you for standing by. Welcome to the Flagship Communities REIT Second Quarter 2025 Earnings Call. [Operator Instructions] 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 encourages you to follow along with during this call. And now I'll pass the call over to Kurt Keeney. Kurt?
Kurtis Keeney: Thank you, operator. Good morning, everyone. Thank you for joining us today. In the second quarter, our operations continued to perform according to plan, which has set us up well to have another great year in 2025. Our strong performance also showcases our ability to continue growing occupancy levels, rental revenue and FFO in addition to same community metrics. Our solid financial performance speaks to the strength of our business model throughout all economic cycles. We have been able to improve our portfolio in a number of ways. The first is by improving the amenities packages within existing communities, making them more desirable locations. The second is through ancillary revenue and cost containment. Through bulk purchasing, we can provide certain amenities that allow our residents to save money while providing us with a means for additional revenue. And the third way is through our lot expansion strategy, which allows us to add more housing opportunities within certain existing communities for a modest capital investment. After adding 112 lots to our portfolio in 2024, roughly 10% of customers have begun moving into these lots, and we are beginning to generate revenue from these new residents. Our success this year and since our IPO is also a reflection of the solid fundamentals of our industry. The MHC industry continues to demonstrate a consistent track record of strong performance regardless of the economic cycle. For over 20 years, the MHC industry has grown approximately 4% per year, outperforming all other real estate sectors. As you can see from Slide 7 of the presentation, NOI growth remained positive during the housing crisis and the great recession and more recently, remains 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 general economic uncertainty. These factors are generally positive for MHCs because our customers tend to stay in our communities because they are the more affordable option. That is why the MHC industry is seen as a defensive asset class relative to other real estate classes. We have stable and recurring rental income streams, mainly due to our large and diverse resident base. There also continues to be a limited supply of new manufactured housing communities given the various layers of regulatory restrictions, competing land uses and lack of zoned land. With that, I will now turn it over to Nathan for his remarks. Nathan?
Nathaniel Smith: Thanks, Kurt. Good morning, everyone. On the heels of the largest acquisition in our history last year, we have worked hard to integrate and improve the communities, and we are very pleased with the progress we have made to date. In West Virginia, we have steadily increased occupancy levels since owning the communities. And in Nashville, Tennessee, new home sales have continued to advance. We have also recently added an amenities package and new clubhouse in one of the communities for the benefit of our residents. Amenity packages and improved clubhouses are important for enhancing the living experience of our residents. Over the last year, we have added pickleball courts, municipal-grade playgrounds, clubhouses, corn hole, dog parks and more to our communities. We also provide extensive holiday and seasonal events such as back-to-school programs that our residents look forward to and enjoy as a community. Recently, our efforts were recognized when our Derby Hills Pointe community in Alexandria, Kentucky was named Community of the Year by the Kentucky Manufactured Housing Institute. This is the fourth year we have won KMHI's Community of the Year Award. And it is a testament to our team's commitment to building safe, high-quality and vibrant communities that foster pride and connection among our residents. We have done a great job on our existing portfolio. But at the same time, we are always looking for external opportunities that adhere to our strict and disciplined criteria. As one of the Midwest region's largest MHC operators, we can leverage our 30 years of operating experience to source off-market opportunities through long-standing industry relationships. I'll now turn it over to Eddie, our CFO, to talk about our financial performance for the quarter. Eddie?
Eddie Carlisle: Thanks, Nathan. Good morning, everyone. We generated revenue of $25.1 million during the second quarter, which was up 18.1% over the same period last year, primarily due to acquisitions as well as lot rent increases and occupancy increases across the portfolio. Same community revenue of $22.7 million for the second quarter grew by approximately $2.5 million over the comparable period last year. This increase was driven by higher monthly lot rents as well as growth in same-community occupancy and increased utility reimbursements and ancillary revenue agreements. Net operating income and NOI margin were $16.7 million and 66.6%, respectively, compared to $14.1 million and 66.2% during the second quarter of 2024. Same-community NOI margin for the second quarter was 66%, which increased by 1.2% compared to last year as a result of lower repairs and maintenance expenses as well as increased utility recapture. FFO adjusted and FFO adjusted per unit for the quarter were $9 million and $0.357, respectively, a 19.1% and 13.7% increase, respectively, compared to 2024. AFFO adjusted and AFFO adjusted per unit for the quarter were $8.2 million and $0.326, respectively, a 23.5% and 18.1% increase, respectively, compared to 2024. Same community occupancy of 85.5% increased 1.2% over the same period last year. As Kurt mentioned in his remarks, last year, we completed a lot expansion that added 112 lots to our portfolio. Adjusted for the impact of this expansion, total portfolio occupancy and same community occupancy would have been 85.6% and 86.1%, respectively. Rent collections for the quarter were 99.2% compared to 98.7% last year, which demonstrates the strength and predictability of the MHC sector and was within our expectations. As at June 30, our total lot occupancy was 85.1% and our average monthly lot rent was $484. Both of these metrics were within our expectations. We remain committed to preserving a conservative debt profile. Our weighted average mortgage and note interest rate was 4.26% and our weighted average mortgage and note term to maturity was 9.5 years. We had total liquidity of approximately $13.4 million. The REIT currently has 22 unencumbered investment properties with a total fair value of $97.2 million as at June 30, 2025. We are well positioned for future growth opportunities with additional leverage ability on our balance sheet. For this reason, we chose not to renew our ATM program. With that, I'll now turn it back over to Kurt for some final remarks. Kurt?
Kurtis Keeney: Thank you, Eddie. We are pleased by our progress so far this year and expect to build on this success in the second half of the year. The ongoing integration of our communities in Nashville and West Virginia, our lot expansion strategy and our strong balance sheet have helped position us for another great year in 2025, the 30th anniversary for Nathan and Me in the MHC business. We expect to maintain our high level of performance and growth as housing prices, high monthly rental rates for multifamily competitors and mortgage rate increases have the potential to lead more people towards manufactured housing because our homes remain affordable. All of this speaks to the strength and the quality of our residents and the predictability and consistency of the MHC sector. We certainly thank you for your time today, and I will now open up the line for questions.
Operator: [Operator Instructions] Our first question comes from Mark Rothschild with Canaccord.
Mark Rothschild: Looking at the same-property NOI growth, which has been consistently for a number of quarters now quite strong and better than your U.S. peers. And obviously, I'm sure you guys do a better job at managing the properties. But is there something related to maybe how fundamentals have been changing in the markets you're in versus other markets or maybe that you're coming in with greater vacancy than some of them that's leading to that? And I'm just trying to understand if that's something you believe is possible to continue to occur over the next few quarters.
Kurtis Keeney: Well, I think that we've been buying some vacancy and then we added some vacancy over the last couple of years. So I do think we've created our own opportunity for same community growth essentially. I don't think our markets are particularly that -- I mean, again, you can't compare us to some of the other competitors when they're coastal. I don't think that's probably a fair comparison for either party. But at the end of the day, no, I think it's really just been because we've had a good strategy of -- at our existing communities of filling vacancy and then we've actually created and developed some vacancy that we're filling. The other thing is the ancillary revenue is continuing to kind of help us. Those mature communities were the ones that we did the ancillary revenue, the bulk buying of cable and Internet agreements with.
Mark Rothschild: Okay. Great. And maybe just one more on the more recently acquired properties, Nashville in particular, are there any metrics you can provide to let us know how they are performing relative to how you expected initially and maybe what we should expect and how that would compare to the same-property portfolio?
Kurtis Keeney: Yes. We're just thrilled with the acquisition. It looks like it was a well-timed acquisition from an expansion of the portfolio perspective. And they are going as planned. We are selling more homes, which is kind of exciting. We're selling more homes in Tennessee than we thought we were going to sell. And right now, and it looks like that project is coming along as well as we can. When we're redeveloping sites and some of those need to redevelop, it takes 12 to 18 months to kind of get that under control typically. And that's going really well. So I think West Virginia is completely stable right now, and Tennessee is growing with home sales. So real happy on both fronts and that they're making their occupancy globally and their NOI is on plan.
Eddie Carlisle: I just maybe just add short note to that. So just from the metric standpoint, NOI seems to be ahead of where we originally thought in the margins as well. And that's mostly driven by the fact that generally, we assume we will get a year 1 property tax reassessment. That doesn't seem to happen in about half the community. So that was a win. So when you look at the actual NOI, it's trending ahead.
Operator: One moment for our next question -- it comes from Tom Callaghan with BMO Capital Markets.
Tom Callaghan: Maybe just drill down a bit on some of the drivers of that same property growth and particularly on the occupancy side, that continues to march higher. Can you just maybe talk a bit about your expectations for that momentum over the second half of this year? And I guess the second piece of that question, just what are you seeing in terms of drivers of that growth? Is it people trading down from apartments, migration or something else? And how does that compare, I guess, relative to history, just given the economic backdrop today?
Kurtis Keeney: Well, the fundamentals of our industry are -- they really haven't changed in the last 12 months. We're still $300 to $500 cheaper than alternative competing forms of housing. Typically, our customers come from multifamily. So in our markets, there's not a -- I get updated data every 2 weeks or every 2 weeks ago. And there are no rent concessions. There's no overbuilding of multifamily in our markets. So it's just -- it's pretty much business as usual here. It's from just a marketing and a demographic growth kind of perspective. So I don't see anything different there, but the good news is this is a good environment for us. It was a good environment last year. It's a good environment this year. They're still competing not only are multifamily more expensive, and we get customers for multifamily and then we -- customers will move out to go to stick built housing. Stick built housing has some challenges right now about affordability. Mortgage rates are still high. Credit tightening has happened at the banks is kind of our understanding on stick built housing. So I think it's tougher for them to go upgrade later. So I think right now, people are staying in place a little bit more. But the other side of it is that we think -- again, we've been buying some vacancy and developing a little bit. And we expect -- we think full occupancy at a location of, call it, 95% to 100%, right, something in there because you're always making decisions in the future about how to improve the community through improving the housing stock. Right now, we think we've got 46 locations that are at all-time highs on occupancy, but that average is only about 86%. So we can still march that forward another 7% or 8% just same community, and that's what's happening kind of organically right now. So it's a good time to be in the business.
Tom Callaghan: That's great color, Kurt. Maybe a second one or last one for me is just capital allocation. Like the balance sheet obviously continues to improve in very good shape. I know in the past, you guys have talked previously about maybe some potential refinancing headwinds for private operators who may have to think a little bit harder in terms of what their portfolios look like. So have you started to see any product hit the market on that side of things?
Kurtis Keeney: Nathan, Eddie, do you want to jump in?
Nathaniel Smith: Yes. Yes. I'll jump in. We -- you continue to not -- like in the past, you had a lot of private equity. I just don't think private equity right now with what the returns they have to have, the manufactured housing isn't happening for them. So we -- I see very, very little private equity out there. I see some one-off people buy here and there, but it is -- there's not a lot that comes on the market. But as I said, you can't beat the big guy upstairs. At some point, some people pass away or the situation changes and the families that own these are forced into we need to sell. So you still are starting to see that -- you still see that. But -- and then you're also still seeing some of the private equity companies and some of the big companies, I mean, Blackstone, just last week, I saw where they put up 3 of their 5-star properties. And that they may not be staying in the market. So because they can't buy enough, that's what is interesting in this business is there's not a lot -- it's a boutique business, and it's hard to scale it.
Operator: Our next question is from Jonathan Kelcher with TD Cowen.
Jonathan Kelcher: First question just on the expense side, the same-property expense growth was around 8.5% this quarter. And I think last quarter, you guys talked about some onetime items in there. Was this a cleaner number in the quarter and a level we can think about going forward?
Kurtis Keeney: Eddie, do you want to jump in?
Eddie Carlisle: Yes, sure. Yes, John, I would say this is -- it was a much cleaner quarter. We didn't have a lot of onetime expenses. Kind of in Q1, we had a lot of storms, storm cleanup, those kind of things. Q2 didn't really have that. Q2 may be slightly elevated from a wages standpoint just because we have some seasonal workers as it relates to cutting grass and those things. But it should be a much better -- much more representative number where we see it. Our utility recapture, so as you think about utility spend, those things were also kind of normalized this quarter. So I would say it's a pretty good representative number moving forward.
Jonathan Kelcher: Okay. That's helpful. And secondly, just on -- Kurt, you talked a little bit about ancillary revenue being one of the reasons you guys have -- do a little bit better on same-property NOI. Some of the stuff like bulk buying, like how long can that go on? How many communities have you rolled it out to and still have the opportunity to do so?
Kurtis Keeney: Eddie, do you want to jump in on your cable revenue per...
Eddie Carlisle: Yes, absolutely. Yes. So right now, we've done about, call it, 60% of the portfolio. We really going to be able to probably effectuate, call it, 80% of the portfolio. The other 20% would have issues, whether it's in a market that's not served by a cable provider or frankly, sometimes the cable provider doesn't want to work -- do the work with you if they already have a really good penetration in a particular market. So we still have opportunity for another call it, 15%, 20% of the portfolio to add. It's just not something operationally you can do all at one time. It's a pretty heavy lift from an operations standpoint just to work -- kind of work through it with the residents and the cable company. So we'll certainly be turning some more on here in the third quarter. That will -- should give us some tailwind as we move into Q3 and Q4. And then the opportunities will come back around next year when we are able to start taking a look at the portfolio that we just bought. So none of those communities currently on having bulk cable or Internet providers there. And it's an opportunity for us to really help the resident from a cost standpoint on their cable and Internet as well as helping us a bit as well. So I still think we have a pretty good runway. Certainly, the next 4 quarters, we should have some tailwinds and then as we move into next year, start looking at the acquired portfolios, we'll have to work on that as well.
Operator: Our next question is from Brad Sturges with Raymond James.
Bradley Sturges: Maybe circling back to, I guess, the acquisition market and looking for a little bit of color or commentary on how you view your pipeline for acquisition opportunities today and whether or not you think you can hit your kind of annual acquisition volume target of kind of, call it, $30 million to $50 million this year?
Nathaniel Smith: Yes. We have been looking at deals. As I said before, you can't beat mother nature. And so I would anticipate that we will surely get to the 30 to 50 number this year. But we're working hard to get there. It can be a tough market. As I said in the past, you got to take the deals when they come and because you don't know when they're coming.
Bradley Sturges: Has there been any change in terms of pricing expectations, whether it's core assets or value-add assets from like a -- perspective?
Nathaniel Smith: No. No. It's just -- it's everybody wants to see cap rates move up in manufactured housing communities. But in my 30 years, they've never moved up. I mean I've watched them move down and especially in the coastal states to 3% -- 3 cap. But in the Midwest, they just haven't moved very much. I mean there's 10 caps and 11 caps over time that we have bought, but they are very difficult properties to turn, and you can only take so many of them a year or in 3 years or 5 years, whatever it takes to turn them.
Bradley Sturges: Makes sense. Just last question, just real quick. Just on the lot expansion program, how do you think about what that will look like this year? I think the target was somewhere around 75 lots this year. Is that still the case?
Kurtis Keeney: I think it's probably a little bit lighter. It's probably somewhere between 20 and 40. And again, this is -- you're not doing it at one location. This is just where we get chances to expand right now. But it's a relatively small number this year compared to the 15,000 lots that we're managing. But at the end of the day, is it there? Yes, it's there. Is it -- will it be a big number this year? No. But I don't really expect it to be a big number any year. But we're going to -- again, that's how you make same community back to an earlier question. That's how you make same community grow. When you take a same community and you can actually add lots and you get the entitlements to do that. That's long term, very accretive. You just got to be patient with it.
Operator: Our next question comes from Kyle Stanley with Desjardins.
Kyle Stanley: You've noted new home sales activity slowing. I think you mentioned this definitely last quarter in response to higher rates and maybe the economic outlook and then that could drive residents towards the properties within your rental fleet as you look to sell them down. I'm just wondering, can you update us on this dynamic through the second quarter and so far in the third quarter? Are you seeing this translate to more home sales within your kind of rental fleet?
Kurtis Keeney: I think I'll let Nathan answer on home sales, and then I'll answer on the rental fleet. Nathan, do you want to jump in on what you see in home sales?
Nathaniel Smith: Yes. Yes, we have seen some slowing in home sales. It's mostly because the consumer doesn't have the down payment. It's not because there's not financing available. It's not because the interest rate on manufactured housing has gone up terribly. It is literally the pushback on the down payment. And as you know, we take 10% or more down. And when you're talking about on a $70,000 single line, that's $7,000 minimum, and they are having a tougher time coming up with that money. And -- but we are selling homes. And we're -- but the other thing is we're not having a lot of people move. I mean you see that as well, where normally, you would have people moving up. You're seeing very little -- very, very little moving up.
Kurtis Keeney: Yes. I think on that same note, on the rental fleet, we're at a high watermark on occupancy of the rental fleet right now. It's like 93%, something like that, 93.6%. And we do expect to be able to sell some of those rental homes because again, it's just an economic kind of directional moment. If people, for whatever reason, can't or uncomfortable buying big double wides for $100,000, then they move to single wides for $70,000. And then after that, they move to maybe a rental home that you're selling for $40,000. So that's an evolution that we've seen over our 30 years. And we -- so we're just -- we're taking what the market gives us. And we don't think we have to rent our way to prosperity, but we will -- we don't think we'll be out of the rental home fleet business either.
Kyle Stanley: Okay. No, that makes sense. And just the last one, just on G&A, it was higher this year. I think you noted obviously higher staffing. I think we've heard about that being a driver of the cost profile over the last few quarters, but also some higher kind of consulting and legal fees. So I'm just wondering if you can elaborate a little bit. And would you say this is a good run rate for G&A? Or is there additional cost in this as you stabilize some of and integrate some of the 2024 acquisitions as well?
Kurtis Keeney: Eddie, do you want to jump in?
Eddie Carlisle: Yes. So what I'd say is obviously the increase in spend was kind of -- was pretty broad. There was a number of areas. In this quarter's data, I won't say there's onetime items. What there are is there's a couple of annual items that we end up having to pay once a year that account for about $200,000 of that amount. So as far as our run rate, I think it is a pretty good run rate kind of less those items for Q3 and Q4 as we kind of continue to position ourselves for future growth. I think, again, we did a little more platform expansion. And to your point, we obviously did add communities. So there's some more roles that were added as well. So yes, I mean, I think it's a pretty good run rate less those kind of what I'll call an annual expense that will certainly come back next year, but you shouldn't see the same thing in Q3 and Q4.
Operator: Our next question is Himanshu Gupta with Scotiabank.
Himanshu Gupta: Just looking at the IFRS NAV per unit, I mean, it's up almost 10% year-to-date, up nicely. What is driving your portfolio value assessment higher in the year so far?
Kurtis Keeney: So Eddie, you want to jump into that?
Eddie Carlisle: Yes, absolutely. So we've not had any change to our IFRS cap rate this year at all. It's still at the 5.11% as it has been since January 1. What we've continued -- it's the same community NOI growth, right? We're looking at capitalizing the trailing 12 NOIs as we do our valuations. And we continue to see significant same community NOI growth driven by kind of the areas Kurt talked about, which from there, it's kind of math that is driving the portfolio to continue to grow in value, and that's what we're seeing. Rental homes, which is part of that investment properties, we continue to see that have, as you would expect, some declines in fair value, but the good growth in our same community NOI continues to drive the valuation up.
Himanshu Gupta: Got it. And Eddie, like what percentage of portfolio is externally appraised every year?
Eddie Carlisle: So we appraised 1/3 of the portfolio annually. That was -- up until last year, we did 100% had a change due to some discussions with the auditors. They thought it would be better that we were doing 1/3. So we do 1/3 external third-party valuation every year.
Himanshu Gupta: Okay. And just a follow-up there. I mean, if I look at the value of portfolio per lot, I think it's almost like $75,000 per lot. Is that where the market is? I mean, when you go out for acquisitions in your target markets?
Eddie Carlisle: Maybe I'll let Kurt speak to that.
Kurtis Keeney: Yes. I think it is, but it depends on where you're at and are you buying a stabilized property or not. So in general, our portfolio is stabilized. And again, when we're talking about having same community operational NOI gains because of these bulk agreements and then you turn around and talking about you being and starting to approach some all-time highs and 46% of the outstanding portfolio in occupancy, you're starting to really see the benefits of a long-term strategy of homeownership. And therefore, you're going to get the higher -- that's how you get the higher margins, right? Homeownership drive the occupancy up. It's a slow process. But as you get there, it gets very valuable. So yes, I'm not -- I think we're right there on the stabilized properties that are out there. And yes, you could buy lower than that, but normally, you're buying some kind of volatility or some kind of -- you've got to go roll up your sleeves and get to work.
Himanshu Gupta: And maybe if I heard right, I think in one of your remarks, you mentioned Blackstone is putting some product in the market. I mean, what kind of pricing are they looking for?
Kurtis Keeney: Nathan, that's for you.
Nathaniel Smith: Yes. Well, what I saw in it, just so you know, we did bid on it. It was a sub-4 cap.
Himanshu Gupta: And like which markets we are talking here?
Nathaniel Smith: So I think one was in Washington, one was in Cincinnati and the other one was in, I think, Atlanta.
Kurtis Keeney: That's right, Nathan.
Operator: And our last question comes from the line of Jimmy Shan with RBC Capital Markets.
Khing Shan: I just have one quick question. So just on occupancy, you had mentioned -- so you're currently at 85% and several of your markets are in the 95%. But I guess if you don't buy or create any more vacancy, what do you think is a reasonable time frame over which you think you can achieve a 95% occupancy?
Kurtis Keeney: I think the modeling should be 2% a year. And if you want to be more conservative, use 1.5. Again, and it's not because you're not moving new people in at a faster rate than that. One of the nuances about our industry is that the housing stock in the community gets a year older every year, right? So my point is if this park was built in the '70s or '80s, you've probably got some housing stock that's still in there from the '70s and '80s. And when that original user or the current user gets to a certain moment, that home has to leave because of age. So you can move in 2 people, but maybe you've got a little normal turnover there to make sure your housing stock is getting better every year. So I think it's 1.5%, 2% year growth on a stabilized community is a good model.
Khing Shan: Okay. So the pace is somewhat dictated by the fact that the houses are aging and it takes -- there is a natural turnover which takes time to replace?
Kurtis Keeney: Correct. And it depends on the original owner, too, right? So we've purchased some of these communities with some owners like to rehab 1970 series homes and resell those. We don't like to do that. But if the original owner was selling new homes all the time, then that actually housing stock doesn't have as much of that turnover. But in the first example, yes, you have to muscle that through until you get the average age up a little bit.
Operator: Thank you so much. And this concludes our Q&A session. I will turn it back to Kurt Keeney for final comments.
Kurtis Keeney: Thank you, operator, and thank everyone for participating today. Please feel free to reach out to our Investor Relations team at ir@flagshipcommunities.com if you have any questions. Have a great day.
Operator: And ladies and gentlemen, this concludes our conference. Thank you all for participating, and you may now disconnect.