BBB D- Rated Flagship Communities Real Estate Investment Trust Wins Kentucky Manufactured Housing Institute’s Highest Award Second Consecutive Year, Can’t Make This Up; plus MHMarkets Updates
For the properly informed, when the Better Business Bureau (BBB) D- rated Flagship Communities gets the Manufactured Housing Institute (MHI) affiliated ‘Kentucky Manufactured Housing Institute’s Highest Award’ for ‘Second Consecutive Year’ it is an obvious case of “truth can be stranger than fiction” and “you just can’t make this stuff up.” Nathan Smith and co-founding SSK partner Kurt Keeney led Flagship Communities is publicly traded on the Toronto Stock Exchange (TSX) under the symbols: (TSX: MHC.U) (TSX: MHC.UN) (MHC-U-T). Flagship is a real estate investment trust (REIT). What fiction writer would dare advance a storyline where a firm notorious for years due to negative media sparked by poor relations with their own customer base – i.e.: a firm like Flagship Communities – gets yet another award? The good news from the perspective of Flagship, previously known as SSK Communities, may be that they used to get an F rating from the BBB. So, D- may be an ‘improvement,’ but more on that further below.
Part I of today’s report will be the news release by PRNewswire issued by Flagship Communities proclaiming their arguably stunningly latest bold ‘window dressing’ type award. Editorially note that MHProNews carrying their press release SHOULD NOT be misunderstood as an endorsement of that firm either as an investment, nor of the firm’s purported business practices. Rather, it is allowing the firm – Flagship Communities – to give their own pitch in their own words, which will be unpacked by MHProNews in Part II. Because this new ‘award’ is perhaps one more classic example of the difference between reality and illusion in MHVille.
Part II will be Additional Information with More MHProNews Analysis and Commentary. This segment will include more information from Flagship, MHI – of which Flagship is “a proud member” of, and other sources.
Part III is our Daily Business News on MHProNews MHVille (i.e.: the artificially smaller manufactured housing industry) connected stocks, REITs, and macro-U.S. market other equities.
Part I
FLAGSHIP COMMUNITIES REAL ESTATE INVESTMENT TRUST WINS THE KENTUCKY MANUFACTURED HOUSING INSTITUTE’S HIGHEST AWARD FOR THE SECOND CONSECUTIVE YEAR
by PRNewswire
June 26, 2023 7:00 AM
ERLANGER, Ky, June 26, 2023 /CNW/ – Flagship Communities Real Estate Investment Trust (REIT) [MHProNews note: this was labeled as not for publication in the U.S…as if] received the Kentucky Manufactured Housing Institute’s (KMHI) highest award for Community of the Year for the second consecutive year. Flagship and its Mosby’s Pointe community was honored at the annual conference in Louisville, Kentucky on Wednesday June 21, 2023. Mosby’s Pointe, located in Northern Kentucky is a 251-lot community that underwent a transformation during the past year with the addition of an outdoor recreation center which includes a state-of-the-art municipal grade playground and equipment, two basketball courts, soccer field and a paved walking trail.
“We are honored to receive the community of the year award for Mosby’s Pointe,” said Flagship CEO Kurt Keeney. “The effort by our staff to serve the needs of the diverse community, demonstrates their dedication and support for the families living at Mosby’s. We thank KMHI and its leaders for this significant recognition.”
The Kentucky Manufactured Housing Institute (KMHI) is the trade association representing the factory-built housing industry in Kentucky. “KMHI is proud to have communities like Mosby’s Pointe and the rest of the Flagship Communities REIT portfolio as members,” said KMHI Executive Director, Logan Hanes. “They continue to be the industry trendsetters in the quality and services that they provide their residents. This is a much-deserved award.”
About Flagship Communities Real Estate Investment Trust
Flagship Communities Real Estate Investment Trust is an internally managed, unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT has been formed to own and operate a portfolio of income-producing manufactured housing communities located in Kentucky, Indiana, Ohio, Tennessee, Arkansas, Missouri, and Illinois, including a fleet of manufactured homes for lease to residents of such housing communities.
Forward-Looking Statements
This press release contains statements that include forward-looking information within the meaning of Canadian securities laws. These forward-looking statements reflect the current expectations of the REIT regarding future events, including statements concerning the intended monthly distributions of the REIT. In some cases, forward-looking statements can be identified by terms such as “may”, “will”, “could”, “occur”, “expect”, “anticipate”, “believe”, “intend”, “estimate”, “target”, “project”, “predict”, “forecast”, “continue”, or the negative thereof or other similar expressions concerning matters that are not historical facts. Material factors and assumptions used by management of the REIT to develop the forward-looking information include, but are not limited to, the REIT having sufficient cash to pay its distributions. While management considers these assumptions to be reasonable based on currently available information, they may prove to be incorrect. ##
Part II Additional Information with More MHProNews Analysis and Commentary
First, let’s document the BBB’s current rating of Flagship Communities. The text below the D- rating of the collage is apparently from a Flagship Communities resident complaint. More on this further below.
Previously, Flagship was called SSK Communities and they had an F rating with the Better Business Bureau (BBB). Our MHLivingNews sister site led the charge in exposing the facts for mobile home and manufactured home shoppers, as well as others researching the firm, to digest.
As alluded to in the preface above, MHI has also given Flagship an ‘award’ for “Excellence in Manufactured Housing” despite their poor BBB rating. It is Orwellian or Stalinesque propaganda behavior at its finest. Note for those not familiar with George Orwell’s writings, Wordnik says Orwellian means: “…particularly in the dystopian novel Nineteen Eighty-Four; characterized by use of misleading terminology, propaganda, censorship…” Left leaning Wikipedia says Orwellian means, “is an adjective describing a situation, idea, or societal condition that George Orwell identified as being destructive to the welfare of a free and open society.” In 1984 Orwell hit his readers with the notion of a then-future nation where ‘war is peace,’ where ‘freedom is slavery’ and where ‘ignorance is strength’ from the lofty perspective of an evil Big Brother. In short, Orwellian can mean something can be the opposite of what it truly is.
With those definitions in mind, MHI and it seems at least one of their affiliates, appears to be engaged in a scheme to burnish (i.e.: polish, shine, improve) the image of Flagship and some of their other brands that have come under fire from the public, from public officials, from media, and others. For instance, apparently like Flagship, Cavco Industries had a D- rating in the recently (2023) posted report and analysis below was published. These are just some examples of how down is up, up is down, in the Topsy Turvey, Through the Looking Glass world MHI’s insiders are generating with smoke, lights, CGI, mirrors and graphics.
According to Yahoo Finance at the close of business on 6.26.2023 here is the 1-year stock track for Flagship Communities.
Next, according to the Flagship Communities website on 6.26.2023, these pulls quotes reflect their notions of key parts of their business plan, and thus of their investment strategy.
Fragmented Industry with High Barriers to Entry and Imbalanced Supply and Demand Dynamics
The MHC industry is highly fragmented and primarily consists of local owner-operators, public real estate investment trusts and institutional investors. The top 50 MHC investors are estimated to control only 17% of the 4.2 million manufactured housing lots estimated to be available for rent in the United States, presenting an opportunity for consolidation. Factors such as regulatory restrictions, competing land uses and scarcity of land zoned for manufactured housing development have limited new supply, causing an imbalance in supply and demand and creating high barriers to entry for new market participants. The REIT’s management is unaware of any new MHCs having been built within its current operational footprint during the past 15 years.”
MHProNews note: for savvy investors and professionals, stop and consider some of those remarks. Imagine some in multifamily housing (i.e.: example: apartment complexes) that would like the idea of throttling new construction, here the management team – which includes a former MHI chairman, is celebrating the notion that for 15 years, no new manufactured home communities (MHCs) have been built in several midwestern states in 15 years. By throttling development of new manufactured home communities, the existing ones become ‘more valuable.’ But that also means that MHI leaders’ thinking includes the notion of being okay with negative news about the industry, because those negative reports are part of the reasoning bandied about by zoning commission members when they decide if they will grant the necessary authorizations (permits, etc.) to develop a new community. What would happen to housing affordability if everyone took the approach that throttling most or all new construction would somehow be a good thing? Nor is this merely hypothetical. Fellow MHI member, and no less notorious, Frank Rolfe put it quite plainly.
In the latter years of Sam Zell’s life, Zell authored a book called, Am I Being Too Subtle? Zell bluntly told shareholders during an earnings call that he liked “the oligopoly nature” that existed in manufactured housing. Oxford Languages says that oligopoly is defined as: 1) a state of limited competition, in which a market is shared by a small number of producers or sellers.
LibreTexts explains that: “Oligopoly is a market structure with few firms and barriers to entry.”
The Foley and Lardner law firm say: “Oligopolies that have been held to violate the antitrust laws are those where one or more of the members have colluded to control the market via anticompetitive practices, with collusion (e.g., price fixing) being the usual violation.” Consider the collusive nature of giving awards to each other in order to potentially mislead the public, investors, and others. As scams go, pretty bold, right?
Here is another statement from Flagship’s website relative to their investor pitch. Note: what seems like a typo (“favourable”) is in the original and is due to Canada’s use of elements of British English as opposed to how English is used in the U.S.A.
Defensive Asset Class with a Favourable Business Model that Outperforms Throughout the Economic Cycle
The MHC industry is characterized by stable and growing financial performance, with attractive investment returns and low operational volatility. Manufactured housing is predominately a land lease business model, whereby residents are owner-occupiers of their homes and rent a lot on which to place their home within a community. As a result, maintenance capital expenditures borne by MHC owners are generally minor and limited to community infrastructure. MHCs typically have a large, diverse and entrenched resident base with long tenure, low turnover, and minimal delinquency. Given the continued appreciation of single-family housing prices at a rate exceeding household income growth in the United States, management believes that demand for MHCs will remain strong from residents seeking affordable housing.”
Note the phrase: “Manufactured housing is predominately a land lease business model, whereby residents are owner-occupiers of their homes and rent a lot on which to place their home within a community.”
In years past, as MHI and others have noted, the bulk of new manufactured housing production went to street retailers. Street retailers in turn sold manufactured homes to retail buyers, some of whom moved into land lease while others went onto private property. While there has long been manufactured housing developers who sold land/home packages, and there have also been manufactured home community (MHC) operators who sold manufactured homes to customers (typically in their own land-lease communities), the basic model for decades was that street retailers (a.k.a. dealers, sales centers, retailers, etc.) filled the vacancies in manufactured home land lease communities (MHCs – also sometimes inaccurately described as ‘mobile home parks’).
To Flagship’s claimed point about manufactured housing essentially shifting to “predominately a land lease business model” consider the following stated facts from MHI, which have oddly been overlooked or downplayed by other so-called manufactured housing trade publishers and bloggers. Bold emphasis is added by MHProNews, to illustrate the shift in trends.
Manufactured Housing Institute (MHI) Quick Facts (August 2022): 49% of new manufactured homes are placed on private property and 51% are placed in manufactured home communities.
MHI Quick Facts Updated May 2021: 69% of new manufactured homes are placed on private property and 31% are placed in manufactured home communities.
MHI’s Quick Facts (Updated May 2020) 63% of new manufactured homes are placed on private property and 37% are placed in manufactured home communities.
Put differently, there has been a dramatic shift even in the last few years away from street retail and towards “Manufactured housing [as a] predominately a land lease business model.” So, Flagship has a factual basis for their point. That said, one key to Flagship’s pitch is that manufactured housing is being limited.
Once more, per Flagship:
“The top 50 MHC investors are estimated to control only 17% of the 4.2 million manufactured housing lots estimated to be available for rent in the United States, presenting an opportunity for consolidation.
Factors such as regulatory restrictions, competing land uses and scarcity of land zoned for manufactured housing development have limited new supply, causing an imbalance in supply and demand and creating high barriers to entry for new market participants.
The REIT’s management is unaware of any new MHCs having been built within its current operational footprint during the past 15 years.”
This is apparently straight out of the sabotaging monopoly playbook. In recent years, MHI touts teaming up with manufactured home industry competitors. While this may benefit others, how does this benefit those in manufactured housing that want to see robust growth? Given enough throttling of zoning, placement, more competitive financing, and the looming threat of a new DOE energy rule, is it any surprise that manufactured housing is in decline, while far more costly conventional housing has seen a strong surge recently?
MHI claims they want “enhanced preemption” to be implemented, but if enhanced preemption were a sincere posture, then a key part of the Flagship touted business model vanishes. Once more for clarity and emphasis, Flagship’s Nathan Smith has been an MHI chairman and has served on the MHI board of directors for years.
This is MHI saying one thing while doing another. Ironically, it is MHI members like Flagship, when their public statements and behaviors are carefully examined, that reveals just how duplicitous this modus operandi is.
Put differently, once more the publicly traded statements of a prominent MHI member stands in stark contrast to MHI’s claimed and postured positions. A wink and a nod are understood by the insiders, while the outsider – the balance of MHI’s claimed ‘representation’ of “all segments” of the manufactured housing industry – are the fodder for the consolidators. But when the results of MHI are analyzed, it is MHI’s consolidation-focused members that appear to be ‘winning.’ These tactics raise an array of legal issues. Nevertheless, the commonsense takeaway is top MHI staff are apparently wittingly paltering and posturing one thing, while knowing they are not going to accomplish their claimed posture. The result? During an affordable housing crisis, manufactured housing is demonstrably unperforming by epic levels.
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Trade associations are likely to have a range of members, from 5 star to 1 star. That’s life. MHProNews has stressed that not every MHI member is corrupt. Something similar could be said about MHI affiliated state associations. There are good, bad, and meh members.
That said, there is so much stink around MHI that it is increasingly difficult to see them as anything other than a tool for consolidators that are selling out consolidation of their own industry in a Quisling like style of behavior. MHI gives so-called ‘excellence awards’ to companies that even a superficial check of third-party rating organizations would reveal don’t merit an award in the normal sense. MHI has established an ‘amen corner’ of bloggers and trade publishers who rarely – if ever – deviate from the MHI party line.
That said, from the KMHI home page on this date is this following pull quote.
Networking
The networking – if nothing else – that KMHI provides, is worth its weight in gold.
Don Floyds Knob, Indiana
“Networking” is a fluid term that fits with what Flagship noted about their ability to source deals that are not actively on the market. Some trade groups apparently have made membership cheap, and a reason that may be so is because it attracts smaller members into a room where networking – and deal making – occur.
Note: MHProNews has reached out to the BBB to clarify some items on the Flagship rating. It may be that the F rating for SSK Communities on this date is what is the ‘correct’ rating. Time may tell if they are a D- or an F. MHProNews has given them ‘the benefit of the doubt’ in the headline and featured image.
But be their BBB rating a D- or an F, either way, it is problematic for such a high profile MHI member. Which begs the question, why is Flagship getting awards given the MHI-NCC Code of Ethical Conduct? And doesn’t the KMHI – which gave the award, per the Flagship press release above – have a code of ethical conduct?
When it comes to you can’t make this up, while far more costly conventional housing has recently been recovering, far more affordable manufactured housing is sliding. But is that really a mystery? If placement gets harder, and financing is imbalanced compared to conventional housing, then the obvious outcome is that manufactured housing will shrink while conventional housing can as far as they are able based on market constraints, can grow.
To learn more about concerns involving MHI and an increasingly apparent scheme using MHI for the benefit of consolidators and others who may otherwise have a tarnished image, see the linked reports.
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In instances such as Apollo, Berkshire Hathaway, Blackstone or others, manufactured housing may only be part of their corporate interests. Note: depending on your browser or device, many images in this report and others on MHProNews can be clicked to expand. Click the image and follow the prompts. For example, in some browsers/devices you click the image and select ‘open in a new window.’ After clicking that selection you click the image in the open window to expand the image to a larger size. To return to this page, use your back key, escape or follow the prompts.
