Flagship Communities Real Estate Investment Trust

Hello, ladies and gentlemen. Thank you for standing by. Welcome to the Flagship Communities REIT Third Quarter 2024 Earnings Call. At this time, all participants are on 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 risk and uncertainties. Actual results may differ materially from the views expressed today. For further information on these risk 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 presentation, which it encourages you to follow along with during this call. And now I'll pass the call over to Kurt Keeney. Kurt?

Thank you, operator. Good morning, everyone. Thank you for joining us today. Our business performed well during the quarter, just as we have experienced throughout 2024. We continue to see notable improvements in many of our key metrics, including rental revenue, NOI, FFO, and AFFO, which speaks to the strong fundamentals of the manufactured housing space. We also continue to see significant improvements in our same community numbers, which are important metrics to measure the growth and stability of our business. Same community revenue was up over 12% over the same period last year. Same community NOI was up over 13% over 2023 levels, and same community NOI margin was up by 0.6% over last year. Our positive financial results enabled us to announce a 5% increase in our monthly cash distribution for the fourth consecutive year. We have been in the fortunate position of being able to raise our distributions every year since our IPO, which is a testament to our strong business performance, solid operating team, and the outlook for the future. In addition to our strong financial and operating performance, the business has achieved many significant milestones this past year. First and foremost, we completed the largest acquisition in our history by adding seven MHCs to our portfolio. We strengthened our existing footprint in Tennessee by entering Nashville, one of the fastest growing markets in the US, and formed a foothold in the new market, West Virginia, with five distinct locations across the state. We quickly began to integrate these assets and are pleased to note that the progress has exceeded our expectation to this point. We have also made a lot of progress in preserving our conservative capital structure. We refinanced our near-term debt at lower fixed interest rates, resetting the interest rates for another 10 years. The cash proceeds were used to pay off existing debt, leaving us with no substantial debt maturities until 2030. We have also begun the process of refinancing our bridge loan from the acquisition, which we expect to complete in early 2025. Completing this refinancing at more attractive terms helped us improve our financial position as we continue to increase the size and the scale of the REIT. In addition to acquisitions, one of the key ways to help us grow the REIT is our lot expansion strategy, which we have advanced considerably during this year. We have the ability to add an additional housing opportunities with certain existing communities for a modest capital investment. During the second and third quarters, we have added an additional 112 lots to our portfolio on approximately 300 acres, and we currently have the ability to add 638 additional lots to these sites throughout the next few years. I will now turn it over to Nathan to provide more details on our recent acquisitions. Nathan?

Thanks, Kirk. Good morning, everyone. In our nearly 30 years in the MHC business, Acquisitions have been a key part of our growth and success. Our ability to quickly make deals as they become available speaks to the solid foundation of our business and our strong reputation in the marketplace. The MHC industry has established record of strong and consistent performance regardless of economic cycles, and we believe the future prospects of the industry remain bright. Manufactured homes are a cost-effective dwelling option for many Americans. Our customers enjoy homes that are detached structures that do not share walls, utilities, air conditioning, or heating with any other home. These homes include two, three, and four bedrooms, typically with a two-bath option. They also have a deck, yard, driveway, and in-home laundry facility, all for less than the cost of renting an apartment. We have a tried and tested operating strategy, and we are well positioned within the MHC industry, which is primarily consistent of local owners and operators. The top 50 MHC investors are estimated to control approximately 17% of the 4.3 million manufactured housing lots in the United States. 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, which creates high barriers to entry in the market. As Kurt mentioned earlier, we have successfully grown our key metrics during 2024. A large reason for this is our ability to quickly ramp up and integrate the acquisitions we have made since our IPO in October of 2020. We are focused on slow and measured growth, which entails a disciplined approach to acquisitions we complete. Our criteria is also as follows. First, looking for opportunities that will be accretive to our AFFO per unit. Second, we are seeking opportunities that will enable us to leverage management synergies and generate economies of scale. And finally, we're seeking acquisition targets within our current markets or adjacent U.S. states where we currently operate with similar regulatory framework and characteristics as existing markets within our portfolio. Our recent acquisitions in Tennessee and West Virginia are good examples of our growth strategy in action. We already have a presence in Tennessee that we could leverage with this acquisition, and West Virginia is an adjacent U.S. state to our existing portfolio in the Midwest. I'll turn it over now to Eddie, our CFO, to talk about our financial performance for the quarter. Eddie?

Thanks, Nathan. Good morning, everyone. We generated revenue of $23.2 million during the third quarter, which was up nearly 28% over the same period last year, primarily due to lot rate increases and occupancy increases across the portfolio. Same community revenues of $19.7 million for the third quarter grew by approximately $2.2 million last over the comparable period last year. This increase was a result of increasing monthly lot rent year over year, growth in same community occupancy, and increased utility and ancillary revenues. Net operating income and NOI margin were $15.1 million and 65% respectively, compared to $11.8 million and 65.2% during the third quarter of 2023. Same community NOI margin for the third quarter was 66%, which was a slight decrease over the same period last year. ASFO for the third quarter of 2024 was $7.9 million, an increase of 43.6% from the third quarter of last year. ASFO per unit was 31 cents, an increase of 20.7% from the same period last year. ASFO adjusted, which adjusts for transactions that are not considered recurring measures of economic earnings, was $7 million for the third quarter of 2024, a 28% increase compared to the same period last year. ASFO adjusted per unit was 28 cents, a 7.7% increase compared to the same period in 2023. FFO for the third quarter of 2024 was $8.8 million, an increase of 40.9% from the third quarter of 2023. FFO per unit was 35 cents, an increase of 18% from the same period last year. FFO adjusted for the third quarter of 2024 was approximately $8 million, an increase of just over 27% from the third quarter of last year. FFO adjusted per unit was 32 cents, an increase of just over 7% compared to the same period in 2023. Same community occupancy of 85.7% increased over the same period last year, which continues to reflect our commitment to resident satisfaction and ensuring our communities are in desirable locations. As at September 30, our total lot occupancy was 84.4%, and our average monthly lot rate was $447. Both of these metrics were within our expectations. We remain committed to preserving a conservative debt profile. Our weighted average mortgage and note return to maturity was 9.2 years, and our weighted average mortgage interest rate was 4.41% as at September 30. We had total liquidity, which comprises of cash, cash equivalents, and available capacity on our lines of credit of approximately $21 million. The REIT currently has 18 unencumbered investment properties with a total fair value of $43.7 million as at September 30, 2024. With that, I'll now turn it back over to Kurt for some final remarks. Kurt?

Thanks, Eddie. Our mission is to improve the everyday lives of the homeowners in our owned and operated MHCs while providing investors with stable and growing cash flows. One of the ways that we do that is through our ongoing efforts towards tenant well-being, which includes community events and service. We are always happy to be recognized for our work by our industry. Recently, our Oak Creek RV Resort was awarded the best Kentucky campground in 2024. When we win these awards, they are reminders of how great our team is and how hard they work for our residents of our communities. We're also committed to establishing a track record of sustainable excellence and high standards of corporate governance. We take pride in our ability to adhere to the best corporate governance practices as a cornerstone of our success and want to ensure that we are open and transparent with our stakeholders. In keeping with this commitment, we are pleased to be adding two new trustees, Candice McGraw and Jonathan Lee. Candice and John are both accomplished business professionals and leaders with diverse perspectives. We are confident they will make an immediate and invaluable contribution to our board as we continue to grow our business. Thank you for your time today, and I will now open up the line for questions.

Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Mark Rothschild with Canaccord. Your line is now open.

Thanks, thanks. Good morning, guys. Good morning, Mark. Good morning. Hey. And especially if you noted that integration of the portfolio acquisition is, you know, exceeding your expectations, can you maybe talk a little bit more about how that is and if you can quantify any numbers on that, whether it's on leasing occupancy, filling vacant sites?

Yeah, yeah. You know, at this point, you know, when you close on an acquisition, you see if your assumptions are true, right? That's what really happens. And at the end of the day, what we know today is that all the assumptions we were on point on and our NOI is ahead of budget. And we've got our homes there to set up to rent and sell. And so we're very happy with where we are. Nathan got us the appropriate licenses timely, which was a little bit of an effort, to say the least. And so we're in really good shape there. So I think... I think we're really pleased with where we're at. NOI is ahead, and stand by.

Okay, great. Maybe just one more. The rent growth that we're seeing this year seems to be a little bit better than what we saw in the past couple years. Am I reading that correctly, and is that something that you can see continuing in 2025? Yes.

I think the answer is absolutely. The rent growth has been strong. Some of the ancillary income has been strong. And the most important thing that I would say there is it's recurring. Okay, great.

Thanks so much. I'll be back.

Thank you. Our next question comes from the line of Mark Makedis with BMO. Your line is now open.

Thanks. Good morning, guys. Good morning, Mark. Just on the, I think usually around this time of the year, you're contemplating what your lot rent increase will be for the next year. I was wondering if you could give us any updates to how you're thinking about that right now.

You have a good memory, Mark. Yes. We have already given the appropriate notices, so it is essentially public information because we've disclosed to our residents. On average, it's about 6% across the portfolio, which is roughly $30 or something per lot, something right in there.

Six percent? Did I hear that correctly? Yeah. Okay, great. Strong figure. Okay. Just maybe you give us a sense of what's going on in utilities reimbursement. It's been something the past couple of quarters that has been very elevated. I guess you're recapturing more than 100% of your expense. So if you could just give us a sense of what's going on there would be number one. And then number two, it looks like, and I don't think you... break it down the utilities on a same property expense basis. But if we just look at it, and you know, the expense and weighted by average lots owned, there's been a lot of inflation there. So maybe just give us a sense of what's happening.

Eddie, do you want to tackle that one? Eddie, I think you're on mute.

There you are.

We can now.

Okay, perfect. Sorry. Yeah, so when you look at utility recapture, specifically as you look at water sewer, that's the biggest piece of what we do. Our bogey, what we've tried to accomplish is to be 90%. You're correct. We've been now over 90% for the last two quarters, which is a huge accomplishment. It says a lot what our team is doing in that area. The other area that we're getting, we're able to get some amenity fees that we've been able to collect that kind of rolls into the water sewer. And it's actually an opportunity for us to save our residents some money as far as the mancillary services, cable, and internet. And you're actually making money through saving the residents some money. So we've been able to drive that. But that's what you're seeing within the uh the the utilities line the reason you recapture looks to be uh to be elevated there okay so i'm just trying to get a sense like you're you're you're built you're charging more than you're expensing so i guess you're there's fees embedded not just the recovery but there's fees embedded in there is that what you're saying yeah so so we are able to negotiate a rate through uh through the provider and we can go offline i'll give you some more details but we're able to uh negotiate a rate through the provider and still save the residents the money they're getting.

Okay, so I guess the 90% goal would not be a good assumption going forward.

We should be using something closer to... Again, on the water sewer portion of it, the 90% is the goal. It's the ancillary revenues. I'm happy to take some time and break down the actual details of the numbers offline.

Okay, that'd be great. And then just last one for me before I turn it back, I guess second quarter of fairly elevated CapEx just relative to your history. And in the last quarter, there was a talk about just buying homes. So is that the key driver, I guess, now? And I think there was 10 million was the spend you guys had anticipated on the integration of the portfolio. Where are we there in terms of what you were expecting to spend and what's left?

Yeah, so from the CapEx... Yeah, so there's two factors CapEx this quarter. We had a refinance of six properties that we completed. When we do those refinances, the lenders have some required repairs, and those all have to generally be done within six months of closing. So when we do that, you sometimes see a large spend of CapEx related to that. So that's a portion of it. But yeah, still the overwhelming majority of the total overall CapEx spend in the quarter is would be related to the purchase of homes, bringing them in. A decent number of those were homes that we put into the new acquisitions you're talking about. So we had forecasted about $5 million related to homes as part of the new acquisition. We've spent about $3, $3.5 million of that already. The actual work for the upgrades in the community, the roads, the playgrounds, the basketball courts, a lot of that is still to come. Some of that work, you know, because of just the weather and our markets won't be able to be completed until maybe until Q1 or Q2 of next year.

Okay. That's useful commentary. Thanks. I'll put it back.

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

Hey, guys. Good morning, Brad. Just following up on that question, just in terms of CapEx spend, you've got, I guess you've added a little over 100 lots now through expansion. How much CapEx would be related to those projects?

It's interesting. So, you know, we've got the total runway there, including the first ones we put online, is about 750 lots, Brad. the first lots that we put online had very low capex. So I think on average it's probably under $10,000 a lot to bring them online. Again, all of our organic lot expansion is what we call build and fill. It's when you get a property into the mid-90s and you just have some excess land and you have the entitlements to build and fill. So I think right now about $10,000 a lot is a good number on the first 112th. probably even a little bit less than that. But going forward, as we march down this road towards adding the 750, you know, $20,000 to $25,000 per lot is a good number to model as far as just getting them completely online.

It's very creative. And do you have, like, a specific target in mind in terms of what you would add each year over the next few years? as you go through that program?

I would think you'd do, you know, 25% a year is my, is my guess, maybe a little more front loaded, uh, in 25 and 26.

Okay. That's helpful. Um, my other question would be just on the, um, on the bridge loan. I think you talked about your working, you're progressing through, um, refinancing that. Um, I guess, where are you at this, at this point is, is the interest rate volatility, um, you know, slowing that process down a bit or, you know, how should we think about where rates would be today if you were to refinance? Edwin? Yes, sir.

So, yeah, Brad, the answer to your question is yes. You know, my original anticipation is we would potentially get this done in Q4 because I thought we would see some of the 10-year treasury kind of cooperate. Obviously, as we've seen that move back up, take just we're being patient uh even today if we locked today um i guess i guess i know it would be somewhere in the neighborhood of call it six to six and a quarter uh which is within you know when we budgeted the our model the acquisition originally we had assumed six and a quarter we were hoping to beat that and i still think we will certainly on a portion of the debt uh we're going to uh improve that we've got about uh I think we'll get about $25 million of it done, sub-six, and the remainder will be closer to that six, six and a quarter.

Okay. That's helpful. Thank you. I'll turn it back.

Thank you. Our next question comes from the line of Kyle Stanley with the Jardins. Your line is now open.

Thanks. Good morning, guys. Good morning, Kyle. You kind of hit on this a bit earlier, but just on the uptick in ancillary revenue, I What do you see as a longer-term opportunity there, and would you say that the growth that we've seen over the last little bit, it's reasonable for us to assume an additional kind of growth rate on that added revenue profile?

Eddie, do you want to jump in? Yeah, sure. The answer to that is, yeah, it's certainly recurring revenue, and just the same way we have the ability to do lot rate increases, we would have the ability to to drive that as well. Probably on a smaller scale. It certainly, I don't think, will be growing at the same rate that we've grown lot rent. Again, it's as much as an amenity to our employees. It just happens to be, I'm sorry, amenities to our residents. And so it's something that we'll be able to continue to grow. And we still have some runway to do it over more communities over the next 12 to 24 months.

Okay, great. Thank you for that. You know, you often say the multifamily market is your largest competitor. I'm just wondering, are you seeing any changes across your key markets as, you know, U.S. new apartment supply and then the wave that we've seen there comes to an end? Or would you say that your markets just were not as impacted by new supply over this last kind of two-year period?

You know, we monitor pretty closely on a monthly basis. And our markets have not – the new supply that came online has just not impacted us. Again, and I think the main reason is that we're still substantively – if you take the – under the home ownership model that we have, if you take our all-in housing costs and you compare it to multifamily, we've still – you know, we're coming in $300 cheaper or more a month. So we're just the most affordable option. if you have a home ownership model. And so, you know, and then if you get into three and four and five-bedroom homes, which we sell, you know, that differential goes from $300 to, you know, up to $1,000 in savings a month. So we think we've got plenty of runway. In our markets, we have not seen any rent concessions. Now, we have seen multifamily top-line rents, stop escalating so fast. So they're probably more in the 3% to 5% range in our markets. But because of the existing differential in the affordability gap, we don't think this is any problem. Again, we gave revenue top line growth earlier in the call at 6%. And this is a testament to what we say about our industry, which is You know, we just perform in all different economic cycles, and this is the reason why. It's the home ownership model.

Okay, perfect. And then maybe just one more for me over to Nathan. I feel like we haven't heard from you as much. So on the acquisition side of things, you know, has anything changed since we last spoke, maybe following the Fed rate cuts? You know, are you seeing opportunities in the market? You know, has the bid-ask spread maybe tightened or widened? Just looking for your thoughts on what's going on.

Yeah, we haven't seen a whole lot. Actually, there's been the deal flow has actually been quite small. If you talk to people, there has not been a lot of transactions all year, actually. We have not seen the cap rate expand at all, actually. And it's kind of like a standoff. And so I continue to see that. You do see some consolidation of people deciding, do I need to be in that market? And that's what I see the most of right now is companies saying, you know, we have one property in that state. Maybe we should just sell it and move on out. Or we have two properties. Let's go ahead and sell those and consolidate and get our money ready for it. buying more in an Oklahoma where they have seven other properties. That's what I see the most of.

Okay. Okay. No, I think that makes sense. And that's helpful. Thank you. I will turn it back.

Thank you. Our next question comes from the line of Matt Cornett with national bank. Your line is now open.

Good morning guys. Um, just quickly on the 6%, um, I believe last year it was seven, but obviously inflation's come down more than that since the pandemic. How do you ultimately arrive at that figure, given that I don't know if there's a set competitor base that you can price off of? And then if we do, in fact, get kind of more inflation out of this new administration, how is your flexibility to kind of torque that rent higher in more inflationary environments?

Yeah, so it's a very thoughtful process. We do it by location. And, again, we think about 75% of our customers own their homes free and clear. So we want to be mindful about, you know, we have a large amount of customers that are on fixed income, Social Security, disability, maybe pension plan. So we want to be mindful of the rent increases. We don't want to create turnover for no reason. So I think at the end of the day, the 6% is when we went by location, where it really ended up. Our historical guidance has been 4% to 5%, again, just on average. So we're absolutely trending a little bit more towards that, is what I would say. But at the end of the day, the inflationary pressures are interesting because, again, under our model, we've stripped out most of the inflationary line items. The utilities, they're getting inflation in their utilities. And so when we talk about, and again, they pay that directly one way or the other, even the real estate tax associated with the property, they pay that directly. So that kind of limits our exposure to the inflationary pressures. Because when we talk about a 6%, it's closer to more of a triple net lease 6%. than it is for folks that don't have those other line items that are inflationary, sensitive, are already kind of built in to go directly to the residents.

Did I answer your question? Yeah, no, that's perfect. And then with regards to the maybe asking an earlier question in a different way, you mentioned that the recoveries have been over 90%. Do you know what the percentage this quarter recovery would have been on utilities? Because that way we can kind of back out the other ancillary revenues. Yeah, absolutely.

So the actual recovery on the water sewer electric portion of it is going to be about 92%. Okay.

So the bulk of it would have been other ancillary. Okay. And then just lastly on the CapEx side, should we expect – it sounds like there's a few moving parts, but should we expect that the aggregate spend is consistent or should it come down after kind of some of the integration of these new properties takes hold.

It'll come down and it's seasonal as well. So as we finish up the integration, which takes, you know, a year to 18 months on the acquisition and it's, and it's not inconsequential on those, but you know, typically, you know, in our markets, you know, the construction seasons for all the projects is going to run, you know, pretty much the end of March until, right now right right before Thanksgiving then you're kind of locked down for you've got to get your work done now you're locked down for the winter so and then you kind of get go back go back and get going in the spring so there's a little seasonality to it and it will come back down once we get that Tennessee and West Virginia rolling okay sorry I lied one one quick one there

There was actually a little bit of occupancy slippage in West Virginia and then Nashville. Is that, is that just kind of part of the process that you go through, uh, after acquiring sites that, uh, there'll be a little natural turnover and then you kind of get the occupancy gains thereafter. How should we think about that?

There can be, there can be, it depends on what you buy. Uh, for example, in Nashville, we had one location that had some vacancy, if you remember. So we're actually pulling some old homes out of that location as we've had natural turnover there. So that's actually what you're seeing. However, we had another location in Nashville that was, if you remember, like 99% lease, and it actually is still 99% lease. So when you reposition the properties, especially if you're doing value add or deep value add, yeah, you'll see some occupancy slippage. as you pull out the 1978 Windsors and you pull in a brand-new modern home.

That makes sense. I appreciate the color, guys.

Thanks. Thank you. Our next question comes from the line of Himanshu Gupta with Scotiabank. Your line is now open.

Thank you, and good morning.

Good morning.

Just on the rent lot increases, I'm in 6% for the next year. I have in my notes of around 7%, you know, in the last two years. So did you get pushback on, you know, those 7% rent increases? Or would you know, like, what percentage of, you know, residents or homes pushed back on that kind of increase?

In general, we did not. So it was, but if you remember three years ago, I think it was 8.7. And then last year, believe it or not, it was 7.8. It was just the way it worked out. It was an inverted number. And then this year it's about six. So, again, we build this from the bottom up by location, and it's a very thoughtful process that we go through. And we want to make sure that we're getting paid for our investors, but we also want to make sure that our resident base stays healthy, and our resident base is very healthy. And it gives us the ability to move it. even if we go through recessions you know even as we've gone through recessionary periods I'm not saying we're going through one but even even as we've done that we've been able to move rent you know five percent on those years as well and that's the reason so so I think you know I don't we did not get pushed back and and again we're very we're we're happy with the six percent and I think we've left enough meat on the bone to be able to to be thoughtful about the rent increases going forward but If I can remind you that most of my residents are on month-to-month leases, like 98%. So we have great flexibility when we need to.

Got it. And then, you know, you have some markets which are 80% occupancy and, you know, some communities with like 90% plus occupancy. So does this rent increase these changes? You know, like your ability to push a bit harder on those you know, which are 90% plus occupied, or it's pretty standard across?

It's pretty standard across, but, yeah, absolutely. If you're doing more infill, you're a little bit more sensitive on the rent increases. But, you know, the truth of the matter is that's not the most important moving dynamic on moving occupancy. The most important moving dynamic is getting a new home into that site and getting that home available to customers. It's actually, you know, a $10 differential on the lot rent is important, but the main thing is to put a good product out. And we're getting paid in the location. So, yeah, it comes into factor, but it's not as big a driver as you want. The big driver is, you know, pull the new homes in and get them set up and put out a good product for your customers.

Got it. Uh, and then now if I combine the 6% and increases, and let's say, you know, a hundred to 200, this is part of occupancy. I mean, we can, we can get to those high single digit, uh, same community and wide growth. Is it reasonable to assume for next year? I think it is.

Yeah. I mean, again, we were in a very good environment for us right now. The resident base is healthy and the management team's executing. And, you know, we bought runway, Amantio. We bought vacancy. And that gives us the ability to drive some returns. Populations are growing. Employment's good in our market. So, you know, we should be positioned well.

Got it. Okay. And then the last question is on the NOI margins. You know, same community margin is, I think, 66%. And acquisition NOI margin is, you know, just under 60%. I'm looking at Q3. So, in your experience, you know, how long does it take for, you know, that acquisition margin, NOI margin to get to those stabilized margins?

Eddie, you want to tackle that one? Yeah, absolutely. So, when you're looking at those, I'll mention what you're really looking at, several factors. Number one, how quickly can you get the utilities, when I say utilities, water, sewer, submetered and going. So that's generally six to nine months before you're completely up and running and integrated. And then at that point, you're going to have another, call it six months, kind of getting everything dialed in. So I'd say you got, you know, it's called 12 to 18 months on the utility side. The other component is how quickly can you lease up the properties, right? So Empty lots, you're cutting grass. You're doing the maintenance on those yourself. So the sooner that we get the lease up done, the easier it is to get that NOI margins to a stabilized rate. I'd say in these rates, well, not I'd say, the model that we have for these acquisitions is it's about a 24-month process to get it from where it is now, and it was kind of mid-50s when we started the process, to kind of mid to upper 60s, and that's just driving a couple things in utilities and activity.

Awesome. Thank you. Very helpful, and I'll turn it back.

Thank you. As a reminder, to ask a question at this time, please press star 11 on your touchtone telephone. Our next question comes from the line of Jimmy Shan with the RBC Capital Markets. Your line is now open.

Thank you. I just had a A couple of follow-up questions on the expanded lots. Good morning. I guess first I just wanted to clarify that the 112 lots were added in the sort of year-to-date number as opposed to the quarter. And then what would be the reason for the difference between the $10,000 that you're spending on the initial ones versus the $20,000 to $25,000 on the subsequent ones?

First, they were included in the occupancy numbers overall. And, yeah, so, again, this is what we call build and fill. Again, Nathan and I built lots for 30 years. We built the first community from ground up, if you don't know the full history. So we're very capable to build lots. And at the end of the day, we had – we had different forms of infrastructure that were already put in either by us or by, uh, the previous owners. So some of these locations actually already had the water, the sewer. Uh, one of them actually even had the secondary electric. So the only thing you're putting in is footers, uh, maybe a driveway. Then there's no, there's been no earthwork to date. So that drives all the average costs down. So, uh, again, The first $112,000 cost was probably less than $10,000. Historically, it'll run you $20,000 to $25,000 excluding land costs. And we own all the land in these developments right now. So this is just hopefully a nice accretive moment. It's a nice little tailwind for us going forward.

Okay. Understood. So even on the $20,000 to $25,000, which sounds like excluding land costs, that's the normal cost, the economics – as you say, is really, really attractive. So what would be sort of the limiting factor in bringing this lot sooner rather than later? Is it that the community is not at full capacity yet, or are there any other issues?

No, you just actually want to be thoughtful. First of all, you have to actually do the work, and it is a skill set. But you just want to be thoughtful, too, by individual market, how many you're bringing on, you know, And the thoughtful side of that. So if you've got the entitlements, which we do, again, you don't want to bring on 750 lots. There's no use in doing that. But bringing on, you know, 10, 20, 30 lots at a time at a location is a good idea. And again, we're seasonal. So, you know, we're only working between March and October in most markets.

Okay. Thanks for that. Appreciate it.

Thank you. And I'm currently showing no further questions at this time. I'd like to turn the call back over to Kurt Keeney for any closing remarks.

Thank you, operator. And thank everyone for participating today. We certainly appreciate it. Please feel free to reach out to our investor relations team at ir at flagshipcommunities.com if you have any further questions. Have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.