Flagship Communities Real Estate Investment Trust (MHCUN) Earnings Call Transcript & Summary

Hello, everyone, and thank you for standing by. Welcome to the Flagship Communities REIT Second Quarter 2022 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 the 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 CDAR. These documents are also available on Flagship's website at flagshipcommunities.com. Flagship has also prepared a corresponding PowerPoint, which encourages you to follow along during this call. And now I'll pass the call over to Kurt Keeney. Please. Please, sir.

Thank you, operator, and good morning, everyone. We are pleased to report our results for the second quarter and the year-to-date, which demonstrates that our strategy we put in place at the IPO is effective and resilient under all economic conditions. We added 11 communities and almost 3,000 lots to our portfolio year-over-year. We increased revenue compared to Q2 2021 by 46%, net operating income by 47% and adjusted funds from operations by 71%. This speaks to our ability to act on opportunities in the market and generate accretive growth. We also grew our Same Community occupancy to 82.4% and increased Same Community NOI by 8.5%, which speaks to our skill as operators. And we view the current economic environment as positioning us for further success. The MHC sector has shown a consistent track record of growth over the past 20 years, and we remain bullish on the sector's outlook, even as economic uncertainty increases. MHCs delivered positive NOI growth during the past recessions, including the most recent COVID pandemic. We are in an inflationary economic environment with rising mortgage rates, energy costs and basic commodities. We believe we are at the beginning of a recession. However, our resident base is stable and growing. Unemployment in our markets is low, and anyone who wants a job basically has one. As inflation impressures rents and mortgage rates higher, traditional stick-built home buying becomes more difficult to customers. This climate pressures homebuyers toward a manufactured home as an acceptable, more affordable alternative. The Flagship team has been in the manufactured home business since 1995 and experienced firsthand the recessions of 2000, again in 2008-2009 and during the COVID pandemic. We did very well in increasing occupancy in our communities and adding new acquisitions to our portfolio during these periods. Today, we have become one of the largest manufactured home community operators in the Midwest. We are well-positioned in this market, which allows us to take advantage of market opportunities. There are 3 critical aspects to our success to date and what we see going forward. We have 27 years of consistent performance along with an extensive network and strong brand presence to drive the acquisition opportunities towards us. Second, we operate a home ownership model, not heavy on a rental home model, meaning there's no affordable -- more affordable homeownership alternative available. This creates a more stable tenant base and provides us with long-term reliable cash flow. And finally, we have an efficient operating platform that passes on most variable costs such as utilities and property taxes to the residents. This provides us with some inflationary protection and enables our ESG strategy. In the past quarter, our success as operators was recognized when our suburban point community in Lexington, Kentucky was awarded the Community of the Year award by the Kentucky Manufactured Housing Institute. This 546-lot community has an amenity package that includes a clubhouse, new municipal-grade playground, soccer field and basketball court. In addition, we also received in April, a National Community of the Year Award from the Manufactured Housing Institute for our Waterford Pointe community in Evansville, Indiana. This is the 330-lot quiet family community. Amenities are abundant, with a nice clubhouse, paved driveways, playground, fishing lake, walking trails and picnic areas. These awards align with our homeownership model that focuses on creating attractive communities that are amenity-driven, close to schools, shopping and jobs. As we say, you move in because you can afford it, but you stay because you actually like it. Our operating model also supports our ESG strategy. An important part of the strategy is our sewer and water management program, which involves leak detection and submetering. This has proven very effective and typically results in 20% to 30% water conservation post acquisition. Solar-powered lighting is also an essential part of our ESG program. To date, we have installed 850 solar lights, which replaces our traditional street lighting. We intend to eventually convert every light pole in our communities. This program has been well received by our residents as it enhances their environment and reduces cost. These initiatives, along with our 75% women in management and 29% minority resident population demonstrates that we are setting the standards for ESG in our industry. I will now turn it over to our Chief Investment Officer, Nathan Smith, for additional detail.

Thanks, Kurt. As Kurt mentioned, we are well-positioned to consolidate the MHC sector, particularly in the current economic environment. We have a very solid pipeline of opportunities that we are targeting to close through the third and fourth quarter of 2022. This year-to-date we have made 3 acquisitions, 2 in the last quarter. Continuing on our bolt-on strategy in April, we purchased 103 site manufactured housing communities in Riverton, Illinois, that is 89% occupied. This community is about 5 miles from our first Illinois community in Springfield that was purchased in August of 2021. Riverton shares the same school district with our Springfield location, which is one of the most desirable school districts in the area. Like Springfield, Riverton is a high-quality property and was immediately accretive to our AFFO. Eventually, we expect to build a cluster of communities in Springfield, as we have in all of our other metropolitan locations. In June, we purchased 2 communities in North Florence, Kentucky, close to our corporate headquarters and at the heart of where we first began to build our portfolio in 1995. These communities include 345 lots and are 70% occupied. We are excited about this acquisition opportunity. We have great economies of scale in both operations and marketing and expect to take advantage of these locations. Our acquisitions that were completed during the first half of 2022 have no sales activity for several years. We are in the process of beginning our marketing and sales strategy at these locations. I would also like to comment on the acquisition of the Florence community, which is atypical of several acquisitions that we have made in the past. We have been working on these acquisitions for many years, and we were the first that when the owners called and they probably decided to sell. This was a relationship acquisition with no realtor involved and was completely off market. What was most important for the seller was to have the certainty of close. We were able to provide that and work with them directly to create a great asset purchase for both of us. As the largest operator in the Midwest, with 27 years of experience and an active marketing program with strong brand awareness, we are often top of the mind when an MHC owner is looking to sell. Usually it is a family deciding to sell after owning this community for many decades, and they need a buyer with the ability to meet the closing without having to depend on external rating [indiscernible]. Several opportunities like the recent acquisition in Florence are currently under consideration, and our pipeline remains very strong. Rising interest rates could also increase acquisition opportunities from independent operators looking at options when a note comes due. You can also expect us to make further bolt-on acquisitions. The United States industry is highly fragmented. About 80% of an estimated 4.2 million manufactured housing lots available for lease are owned by small operators. Within that group, many acquisitions meet our criteria and have the potential to deliver long-term unit holder value. I'll now turn it over to Eddie, our CFO, to discuss this quarter's financial performance.

Thanks, Nathan. The results for Q2 2022 in the 6 months that ended June 30 reflect our success in growing the portfolio and improving Same Community performance. Same Community properties are defined as communities held by the REIT as of January 1, 2021. Same Community contributions to the top line come from occupancy growth and the rate increases we put in place on January 1. We will continue to see benefits from this rate increase in the future quarters. Revenue in Q2 was $14.4 million, 46% higher than Q2 2021. For the 6 months ending June 30, we achieved revenue of $28 million, 44% higher than the same period in 2021. In Q2, Same Community revenue was $10 million, a 7.5% increase over Q2 2021. For the 6 months ended June 30, Same Community revenue was up 6.7% to $20.1 million compared to the same period a year ago. Net operating income for Q2 2022 was $9.5 million, a 47.1% increase over Q2 2021. For the 6 months ended June 30, NOI was $18.7 million, a 45.4% increase compared to the same period last year. On a Same Community basis, NOI was $6.7 million in Q2, an 8.5% increase over Q2 2021. For the 6 months ended June 30, Same Community NOI was $13.5 million, a 6.8% increase compared to the same period in 2021. NOI margin was 65.9% for Q2 and 66.7% for the 6 months ended June 30, 2022. The NOI margin was 66.7% and 67.2% on a Same Community basis, respectively for the same period. Net operating income benefited from our accretive acquisition strategy with Same Community NOI reflecting our success in cost containment such as submetering of utilities. Funds from operations were $5.4 million in Q2 2022, a 62.6% increase over Q2 2021. For the 6 months ended June 30, FFO was $11 million, a 60.8% increase compared to the same period in 2021. On a per unit basis, FFO was $0.277 in Q2, a 5.9% increase compared to Q2 2021. For the 6 months ended June 30, FFO per unit was $0.561, a 6.3% increase compared to the same period last year. Adjusted funds from operations was $4.7 million in Q2, reflecting a 71% increase compared to Q2 2021. AFFO was $9.6 million for the 6 months ended June 30, a 71.2% increase compared to the same period a year ago. AFFO per unit increased in Q2 by 14.3% to $0.24 compared to Q2 2021. And for the 6 months ended June 30, AFFO per unit was $0.488 a 9.4% increase over the same period last year. Acquisitions in the Same Community NOI drove this growth along with our cost containment efforts, focusing on labor efficiencies throughout the communities and benefits of our clustering approach to acquisitions as well as water and sewer savings positively impacted property operating expenses. To bolster our acquisition capacity, we made 3 debt transactions, 1 subsequent to quarter end. On April 13, the REIT borrowed $18 million, the interest rate on the note is 3.08% fixed for 20 years with the first 60 monthly payments being interest only. An additional $14.4 million was borrowed on June 30. The interest rate was 5.79% for 12 years with all payments being interest only for the full term. And then on July 7, following quarter end, the REIT borrowed $10.7 million. The interest rate on the note is 4.98% for 20 years with the first 60 payments being interest only. As at June 30, 2022, the REIT's debt-to-gross book value was 40.4% compared to 37.3% at March 31, 2022. And we ended the quarter with total cash and cash equivalents of $23.4 million with no near-term debt obligations. We also took 2 measures in the quarter to aid trading liquidity of the REIT units. On May 17, we filed a supplement to our base shelf prospectus to allow for an at-the-market offering. Under this offering, we may issue units from time to time up to an aggregate amount of $50 million. As of today, we have not issued any units under this offering. Also, to facilitate easier trading for Canadian investors, we added a Canadian dollar listing of our units under the ticker MHC.UN in June. As with our other listings, distributions are paid in U.S. dollars. Our portfolio continues to perform well. Same Community occupancy grew to 82.4% as at June 30, 2022, compared to 81.3% as at March 31, 2022. This growing occupancy rate results from the strategy Kurt described to increase homeownership and upgrade the communities to improve resident satisfaction. Rent collections as of June 30, 2022, were 98.2%, slightly down from 98.8% as at June 30, 2021. As at June 30, our total lot occupancy was 83.3% compared to 83.1% as at March 31, 2022. Average monthly lot rent was $384 as at June 30, 2022, a 7% increase compared to $359 as at June 30, 2021. I'll now turn it back to Kurt for some final remarks.

Thanks, Eddie. Based on our long experience in the MHC sector, we look forward to continuing to grow as we head into these challenging times. The upside potential of the MHC sector comes from demographic trends and economic pressures. Household formation is increasing in the U.S. with millennials entering the housing market. At the same time, they are faced with increased housing prices and rising mortgage rates that put single-family homes out of reach for many. In many markets, apartments can also be challenging with high monthly rents and the uncertainty of a landlord increasing rents to address their own inflationary pressures. As we saw in the previous recessions, we expect these factors will drive more people to manufactured housing, providing many Americans with a more affordable pathway to homeownership. For less than the cost of renting an apartment, MHC residents benefit from having their own detached home with a deck, yard, driveway and in-home laundry. They also have access to our many on-site recreational amenities. We are an attractive option for them. As a public REIT with the resources to act on opportunities, we are well-positioned to benefit from these trends and deliver long-term value to our shareholders. We are one of the Midwest region's largest MHC operator and the only pure-play manufactured housing investment in the Canadian capital markets. Our REIT allows investors to participate in a unique and stable market with a significant growth potential. We certainly thank you for your time today, and now I'll open up the line for questions.

[Operator Instructions] Your first question comes from Mark Rothschild from Canaccord.

For several years you talked about how private equity was aggressive and it was impacting the pricing for properties. With rates rising, has that affected the buyer pool at all? And to the extent it has, is this something that you've already seen in the deal flow and in pricing? Or is it just something that you may be anticipating?

Nathan, you want to…

Yes. Yes. Mark, I would say you're seeing private equity be less aggressive, because obviously as the interest rate moves up and there are highly leveraged people, and so that also makes them a more difficult situation. So we are seeing less of them. We do still see deals pretty competitive actually, but less people in the market. I think it would take -- it will take a little bit longer for them to move out. But I do see -- and I do see deals coming back on the market once or twice because they didn't get what they felt the first time. And now you also see there's people having a huge grouping of properties where they sell -- almost sell 20s. They're seeing that, that might not be the best way to go and they're busting them up in one season 2 seasons.

And you anticipate this impacting the cap rate at which you'll be able to buy properties?

We have not seen the cap rates. We've seen it stop compressing, but we have not seen it move up very much, so. Eddie, you want to add to that?

Yes. No, I think that the rate increases are -- obviously impact leverage across the entire industry, but I think it's also going to work to kind of cool the inflationary environment. As an asset class manufactured housing, it really benefits from the fundamental of short-term leases, better pricing power as compared to other types. And so with the U.S. still experiencing the housing crisis and people looking for affordable housing, could be -- still being driven to our asset class. And that works to keep this asset class -- cap rates very steady. I mean, we've not really seen an impact to our cap rates that we're buying at, at this time.

Okay. Great. And maybe just one other question. You guys have generally not been in favor of owning the homes and having the tenants just as a renter and not a homeowner. Does higher interest rates -- and I know your homes are not as expensive as the typical single-family housing. But does that impact the way you would look at that business and that if someone can't afford the home, but rents are really moving up considerably, that maybe that just becomes more attractive even with the greater risk involved?

I'll jump in on this one, Mark. It actually is -- it's better for our home sales model. It pushes that buyer that wants to own -- instead of a stick-built house, they're now wanting -- they can now afford a manufactured home. And when people raise rents outside of us, it directionally pushes them forward. So it doesn't necessitate that we actually increase our rental fleet because we don't want to do that in general. Again, we don't ever think we'll be out of the rental home business, but we'd like to see it reduce as a percentage of our overall long term, because the margins are less. But at the end of the day, it actually is the opposite net result. When interest rates are rising outside of our industry, it pushes people to home ownership within our industry if you've got that model. And our customers' interest rates really haven't changed much, by the way. They were not tied to the mortgage, the 30-year mortgage rate. So we have chattel loan mortgages on our homes, when we sell them, we get typically financed by Berkshire Hathaway and some other vendors in the market. And those interest rates really haven't changed in the current period.

Your next question comes from Scott Fromson from CIBC.

Wondering if you can give a bit detail on the small decline quarter-over-quarter in monthly average rental rate, please?

Yes. It's a product of the acquisition that we completed. It's just -- it's a small decline.

Fair enough. Okay. And can you talk about what you're getting for rent increases on new leases and renewals. You're still looking for 4% to 5% annual increases or will this actually increase due to elevated inflation?

So typically our rent increases take effect in the first part of the year, typically January, unless it's an acquisition. And so yes, we -- I think we were just a little over 5%. So all of our variable expenses are pushed through to the resident, either through submetering for water, sewer, they pay their electric directly to the municipality, and even the property taxes. So what I would say is, the inflationary pressures that everyone's talking about, they are being borne by our residents right now. So -- but we don't have to adjust our rents aggressively because they're already paying that outside of our income statement. So I would think that, again, in this current market, we could still -- our guidance of 4% to 5% is good guidance that might edge on the higher of 5%, but I don't think we have to raise our rents double digits to keep up with inflation. They're already paying the inflationary expenses.

Your next question comes from Kyle Stanley from Desjardins.

So you mentioned a strong track record of operating through previous economic downturns. I'm just wondering, during those periods, how did your rent growth trend? I mean, we just talked about still achieving potentially even at the high end of your kind of 4% to 5% target. I'm just wondering if that maybe slows down in times of economic uncertainty.

Well, I think, again it was -- when you look back, every recession looks different for different reasons, and we also had a couple of industry cycles going back to like 1999. So we have been around the block for a while. The key thing about these rents is that, are people working. And the answer with our residents is they are. And about 40% of our residents, again, are on fixed income, Social Security disability, maybe a pension plan. And these are all, in general, primary residences in our portfolio. Again, that's kind of the general demographic. And so they -- again, do you have to raise it more aggressively? You really don't. The benefit of what we've got going on right now, again, is these inflationary expenses are outside of us. Historically, I'm sure we raised rents probably at the higher end of the spectrum. But the key thing is we were able to do acquisitions during those periods, and we were able to grow occupancy. So again, the secret is -- it's like a 3 punch, right? The first one is the way you get your return, is you get that 5% rent increase on the same store, which we proved we can do. The second one is we get occupancy growth, same store, which we proved we could do. And then Nathan comes in for the final with the acquisition. I think that same thing all works to a strong level in these environments right now, especially as we can -- we structured our balance sheet to come in and take advantage of some of these opportunities.

Okay. Great. On the acquisition side, I mean where would you be comfortable taking leverage to facilitate some of the acquisitions that you mentioned you're looking at in the third and fourth quarter?

Eddie, you want to take that -- you clicked out a little bit, Kyle, I didn't hear the whole question.

Yes, I got it. Yes, so I mean the guidance we've given is 45% to 55%. Like I said, right now we're at 40.4%. At IPO we were at 49.8%. I don't really envision us going much more than that, but that's kind of where we're comfortable.

Okay. Fair enough. That makes sense. And then just last one for me. Can you talk about any changes you've seen in the manufactured home sales market since maybe we last spoke? Or has there been -- I think your relationships with the homebuilders have made it possible to keep access to the homes despite the supply chain issues, but just wondering if access to new homes has changed at all.

Well, Kyle, I have been saying for basically 18 months that we were not having this huge surge that people were talking about in home sales. You were hearing some supply chain issue because people were making irrational purchases of manufactured housing. And so I think that, that has come -- those people probably, as I said, they got their lot full or their bellyful of a lot of homes. As I drive around the Midwest and the upper South, which I do a lot, I see that the traditional retail locations on the side of the road that sell manufactured housing into the rural areas or into suburbia and new land home, they have plenty of homes. So my guess is you're going to see some of the big 3, which I call Clayton, Skyline Champion and Fleetwood are -- which is basically Cavco. You're going to see that there's going to be pressures on them to bring their -- the price of their homes down, because the supply chain is getting better, and they are having a tough time selling them to the retail location. So if you want a house right now compared to 3 months ago, we never had that issue, because we were [ cataloging ], been so involved in this for so many years. But right now you can get a house in 1 week, if you wanted.

Your next question comes from Brad Sturges from Raymond James.

So on the occupancy side, I guess quarter-over-quarter same-property portfolio, I guess, was up kind of 90 basis points. It's a little bit, I guess, higher than kind of the guidance you've been giving in terms of full year occupancy improvement. So do you see a little bit more of a faster pace on the occupancy improvement side? Or are you still kind of sticking to the 200 to 300 basis points for the year on a year-over-year basis for improvement?

I think we should stay with our current occupancy guidance, 200 to 300 bps because I still think that's the proper guidance. You do go through moments where you can do a little bit better from time to time. And I hope this is one of those going forward. But you don't want to -- we're kind of doing lot of under-promising and over-delivering.

There's also some seasonality to the sales process that would be affected by -- that would make that look better maybe in the second quarter when the sales kind of start to slow down a little bit in the July time period. So you're still going to get a little seasonality of that there, which would result in a little higher pickup in that second quarter versus some of the future quarters.

Okay. And just to go back to your previous comments. I guess, as you're looking at the units -- the home -- the rental home sales, the -- are you assuming a little bit of a faster pace going forward that you can achieve? Or are you just assuming still that you can sell kind of a home a day type of thing?

Well, we are not seeing a…

Yes, go ahead, Nathan.

Yes, we are not seeing a downturn in home sales at our properties, because, remember, we're the entry level. Actually we're seeing a little bit more activity because as the interest rate has moved up, that pushes people down. And -- but we're also -- we've seen a little uptick, but not as much in our interest rate, because it's always because the chattel mortgages are a little bit higher. So we have not seen a deterioration in our market at all. I think there are some markets that are having tougher times than others. But we are not seeing that as much. Remember, we're entry-level middle of America, upper South housing, a little bit different than if you're doing other things.

And as far as on rentals, right, I think we kind of assume the same pace that we would before. We'd like to get -- so right now our rental homes are about 10% of our total number of lots. Obviously we've expressed that we want to continue to drive that lower. And a good rule of thumb is, hopefully we can decrease the -- by 10% a year, so.

Okay. So consistent pace, so. The I guess last question for me, just on the couple of acquisitions in the quarter, can you comment about going in yield or cap rates? And then I'm assuming it's -- there's some bread-and-butter opportunities in terms of driving additional value beyond that initial yield?

Yes. So cap rates on -- Nathan, if you don't -- I'll talk a little bit to the cap rate.

Yes, please. Please.

Yes. So going cap rates, again, different because of the different markets. The acquisition in Northern Kentucky was a -- it's probably the -- physically the hottest location maybe in our portfolio with where the location is at. And there was a decent amount of competitive pressure there. So that cap rate was going to be slightly [indiscernible]. When you're in Riverton, Illinois, that's a little better cap rate, and you're looking between 5% and 5.5% there. But it's a -- still to make the point, it's still a competitive market. It's -- these assets are just so hard to come by, and obviously these relationships that make this fostered over the last 27 years [indiscernible] have still enabled us to get our foot in the door and to get these opportunities before they go to brokers, but you still pay for them. And it's a great business with a lot of competitive pressures, but the cap rate seems to be kind of holding pretty steady.

Your next question comes from Himanshu Gupta from Scotiabank.

So looking at the recent debt financing, I'm looking at the Fannie Mae credit facility, had been 5.79% interest rate, a bit higher compared to the other financing. So is this the cheapest source of financing available in the market now?

No. It's a little -- it was a little different model than what we've looked at before. So this is an addition to our Fannie Mae credit facility, and these were effectively second mortgages on the properties within that facility. So it's a little different just structure that we've had on our other financings. With that being the second mortgage on the existing properties, it's going to drive the rate up somewhat. The more recent financing that we closed with [ Lifeco ], which is kind of back in the normal down the middle financing that we've done is probably more indicative of where rates are today. We're still seeing rates in the 4.5% -- between 4.5% and 5% for 20-year fixed rate debt that we can do with Lifeco. Really that's been enabled by the REIT capital structure. As long as we're putting less than 50 -- or 50% debt in place on these assets or less, we're still getting -- seeing pretty competitive rates in the market.

All right. Okay. So typically you can get financing at 4.5% to 5%, that's the range. And then have you seen transactions where cap rate has been below the cost of debts? I mean, are buyers still able to make the math work in those cases?

I'll just speak to the financial part of that. And we've seen folks with, doing cap rates that are below cost of debt, we generally don't participate just because we're looking for those accretive acquisitions out there. And it's -- it depends on what the opportunity is on the other side of the acquisition. So if you see a -- going in cap rate on sellers' numbers, that's slightly below the cost of debt. But you know that there's a lot of opportunities, whether it's submetering or rent growth or occupancy growth or just other things within that business that you can change to drive growth, then, yes, maybe that's something we're willing to do. But that would kind of be the only…

Yes, we don't do those regularly. But you do find some [indiscernible] you'll go in and if it's a mom-and-pop, maybe the things that they were doing, how they would operate their business. And if you go in on their numbers, it would be in a situation that might be a negative, but then you would quickly be able to fix it in the first 6 months, and it will become accretive pretty quickly, if that makes sense. Sometimes they're -- they're doing things, like if it's not submetered, would be one of them. If they're including the water, sewer, the garbage and the sanitation in the rent, you can get that -- that could be a problem. So you get it fixed.

Himanshu, I think that the -- I'm sorry for interrupting, but I think the guiding light in this is never forget that we still own 28% of our stock. And so we want accretive acquisitions. I mean our -- we have complete alignment. So it's...

Yes.

I don't know what else to say. We have complete alignment.

Got it. And talking of -- so thanks for the color there. And talking of accretive acquisitions. So I'm looking at the NOI margin on your acquisition portfolio, that's like 64%. And your Same Community NOI margin is like 67%. So there's further opportunity out there on the acquisition portfolio to improve further?

Yes. Absolutely. The integration of acquisitions is an art, it's a talent, and it takes little time. Especially if you start talking about value add and the deeper the value add, the more time it takes to get that margin where it needs to be. And each community is different. The community in Hilltop, Illinois was -- had a lot of rental homes. The 2 in Florence had no rental homes. It's more about capital improvements and submetering which improves the NOI margin. So yes, we've got plenty of room to run there on the acquisition margin.

Okay. And then just switching gears, looking at the rent collection this quarter, a bit -- I mean, slightly lower compared to the previous quarter. Is there anything to read there? Any thoughts?

Yes. I've looked at it. I was involved in it the whole time. During COVID, the truth of the matter is I don't understand why anybody was ever late on anything. I mean, the government basically stepped in...

Yes.

And helped everybody. I -- again, I had a really hard time understanding how anybody was late on anything in the United States. Those programs are beginning to end. So I call this a little bit of normalization. I don't think it's a needle-mover of a number. But I think some of those programs are ending, and there are some people that need to go back to work. I…

[indiscernible] as a general rule, June and July are the toughest months or -- it can be the tough months to collect your rent. As we say, it gets people -- that's when people start taking holidays. And sometimes they -- you're their holiday ATM. But yes…

Yes, it's true.

I agree with Kurt 100% on that. Kurt and I've been in this 27 years, and that doesn't surprise us.

Got it. And then in the last recession, like what happens to the rent collection. And you spoke about rent growth still continues to be there. You don't see much occupancy erosion. But do the selling tenants, they -- I mean, they default or have you seen any pickup in bad debts during the last recession in the asset class?

No. No. Excuse me. It's actually the opposite. If you think about the current environment, there is just no place they're going to go cheaper. Again, other than mom's couch, right, that's what we always say. Other than government subsidized housing, there is no place more affordable than our communities, especially once you get your home paid for. And again, the blessing of our communities is that we've been selling homes on short amortizations for 20-plus years. So we think about 75% of our rental customers on the land don't have a mortgage on their home. So again, that means they've only got their lot rent. I mean you can't go some place cheaper for them, so they should pay their rent is the moral of the story. Again, if you were talking about a recession in our markets where unemployment was 15%, that's -- okay, that's a different conversation. And we don't anticipate that. We've never seen anything like that. So in the last recession, we did not have a collection problem. And in the current inflationary environment, I actually think, again, it's the opposite problem. I think people are going to be looking for more affordability because gas is $5 a gallon versus $3, and groceries are up 30%.

Got it. Fair enough. Last question from me. What was the Same Community lot rent increase in Q2? I did not see that in the disclosure. Sorry if I had missed out.

Yes. No problem. We went from $362 to $384.

No, this is the Same Community or this is the total lot rent?

If you're looking quarter this year versus last year, it was $362 to $384.

Okay. So that's the Same Community, that's not total lot rent.

Correct.

Your next question comes from Scott Fromson from CIBC.

Hi, sorry, I cut myself off on the previous questions, but I was going to ask -- faulty fingers.

We [indiscernible] Scott.

No, no. It's not you, it's me. I was going to ask questions on the rent collection, but Himanshu -- you covered that with Himanshu's questions. So I'll turn it back, thanks.

Your next question comes from Tal Woolley from National Bank Financial.

In May, I believe President Biden sort of announced some policies around stimulating manufactured housing. And I apologize if this was asked earlier on the call, I had to join a little late, but...

It was not.

I'm just wondering if you could sort of give a rundown of what you saw in that and what -- if there's anything there that could be helpful longer term.

I have heard other people comment that they think it's the best thing since sliced bread. I think it will have 0 impact on us.

And what were the key proposals that -- like it's very -- so if you -- I saw like some headlines in the journal and stuff like that, but I didn't really get an idea of what the nitty-gritty was. What are some of the things that are being proposed?

Well, one of the things that we've been talking about there is that Fannie or Freddie or some government agency will match the loans, and you'll go into 30 years and blah-blah-blah-blah-blah, I call it, and it's all [indiscernible] dreams and unicorns and rainbows and tulips. And it'll never happen because they do this about every 10 years, they do the same rigmarole, I call it, and it never comes to fruition.

Why do u think it -- we've been -- Tal, we've been tricked before, Tal, we're tainted, Tal, we're tainted. We've sat in the meetings with them. We've been tricked before. It's a snipe hunt. You don't know what that means, don't look at us, it's a snipe hunt.

I've heard other people talk about how great it's going to be, and I've just never seen them ever get to it. Here's what I'll tell, one of the things that they also put in there, that you have -- that you are going to give a 30-year lease to a person on a piece of property. I just don't ever see us doing a 30-year lease, I'm sorry.

Yes. They're calling for more actual manufacturing of the homes with another provision that was there.

Right.

Nathan spoke to it earlier. I mean, the manufacturing, I mean it's there.

It's there. You can get a house -- I mean, here's -- Tal, here's the situation, last week a certain -- 2 or 3 plants that I know of across the country actually ran at -- had 2 off days, and another plant I know dropped a house a day of what they were going to build. So there you go. There's no -- you can get a house now. So it was all unicorn and rainbows, I've called it.

So this is a -- sort of like the cicadas, the unicorns emerge once every 12 years [indiscernible] got it.

Yes. [indiscernible] I'm going to start using that. [indiscernible] I am going to start using it.

And if we're wrong, Tal, and everybody else is right and we're wrong, God bless them. We will be able to change on a dime. But right now we've got month-to-month leases, and so does most of the industry and, again, if it changes, God bless them, but we don't think so.

Okay. And then just the last thing, with the aftermarket program, I appreciate like given where the stock is, that was probably not something you're dying to use right now or anything like that. But have you thought about like when it would be appropriate? Like when to tap, like when should we sort of sit there from the outside and go, like, yes, that looks like something they would use it for. It would seem to me like size would be the primary thing that would dictate when you would use it. The size that they're looking at.

Yes. I think timing. The beautiful thing about it is we have alternatives. We'd like to reduce our debt, truth be known. And we've said that on previous calls. It's pretty hard to do that when you're growing your portfolio in a time where the market has decided to throw you in with office. And we're not. And we also get combined with multifamily, which is at least closer, but it's still not the same because most people have month-to-month leases. But the -- so yes, I think timing is important. Don't look for us to -- we won't be out there doing anything silly. We're really respectful of and appreciative of our institutional and our investor base and our retail investors. And we're only going to do things that are accretive. We may access the ATM if the market straightens up. But between now and then, it's just full steam ahead. We're just going to grind out our returns and take care of business. And when the market straightens up, we'll probably do something.

[Operator Instructions] Mr. Keeney, there are no further questions at this time. Please proceed.

Thank you, operator, and thank you, everyone, for participating. Please feel free to reach out to our investors team -- Investor Relations team at [email protected], if you have any further questions. Thank you, and have a great day.

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