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Hello, ladies and gentlemen. Thank you for standing by. Welcome to the Flagship Communities REIT Third Quarter 2021 Earnings Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded.Today's presenters are Kurtis Keeney, Flagship's President and Chief Executive Officer; Nathan Smith, Chief Investment Officer; and Eddie Carlisle, Chief Financial Officer. Please note, 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 SEDAR. These documents are also available on Flagship's website at flagshipcommunities.com. Flagship has also prepared a corresponding PowerPoint presentation, which it encourages you to follow along with during this call. And now I'll pass the call over to Kurt Keeney.
Thank you, operator. Good morning, everyone, and thank you for joining us today. I would like to begin today's call with an acknowledgment of Remembrance Day and Veterans Day, a day in which we come together to honor our veterans. Many veterans call our communities home and on behalf of the Flagship management team and Board, we wish to pay tribute to those that have served for both Canada and the United States to help all of us enable to live and freedom.Now let's turn to our results. During the third quarter, we continued to demonstrate our capabilities as strong operators with the ability to apply our business model into new markets much like we did last quarter. We entered the state of Illinois, our seventh U.S. state with the acquisition of Woodland Acres Pointe for $16.3 million. This acquisition and the acquisitions in Indiana and Missouri are further proof of our ability to export our tried and tested business model into new operating markets across the U.S.We've also continued to grow within our core markets with the acquisitions of 2 RV Resort communities in Northern Kentucky and Central Ohio. Both of these acquisitions are expected to be immediately accretive to our AFFO per unit with additional above-market growth over time. Our operating success translated into a solid financial performance for the quarter which enabled us to announce a 5% increase to our monthly cash distribution to unitholders subsequent to quarter end. The new monthly cash distribution will be paid on or about December 15 to unitholders as of record November 30. All of the acquisitions we have completed, be it in an existing operating market or a new market have adhered to our disciplined growth strategy. Nathan will elaborate on that more during his remarks. Now let's turn to the financial results of the quarter. Our revenues, net operating income, adjusted funds from operations all remained strong and exceeded our forecast. This is mainly due to 3 factors: first, the acquisitions we have completed to date; second, higher-than-forecasted utility reimbursements and other revenue sharing agreements; and finally, cost-containment initiatives we realized during the quarter.The merits of manufactured homes speak for themselves, and we generally believe that they will continue to be a dwelling of choice amongst the general population, especially as housing prices continue to rise in our core markets. Manufactured homes offer a better living experience compared to other options. These homes are detached structures that do not share walls, utilities, air conditioning or heating with any other homes. Our customers typically enjoy 2-, 3- and 4-bedroom homes, typically with 2 bathrooms. These homes also have a deck, yard, driveway and in-home laundry facilities. Our MHCs also typically include recreational amenities and common areas, including clubhouses, green spaces, playgrounds, basketball courts, soccer fields, fishing lakes and after-school programming. And now I'll turn it over to Nathan to provide more detail on our new operating markets. Nathan?
Thanks, Kurt. Good morning, everyone. Last quarter was noteworthy because it was our first stepping out of our existing footprint. And we have continued to add 2 new operating markets this quarter. These acquisitions were made possible in part through our long-standing industry relationships. We have been in the MHC space for 26 years, and during this time, we have established ourself as a credible operator in this industry. The top 50 MHC investors are estimated to control 17% of the estimated 4.2 million manufactured housing lots available for lease in the United States. We believe the addition of our new operating markets gives us the ability to continue to grow our community base.All the acquisitions we have made to date adhere to our strict and disciplined criteria as follows. First, we're looking for opportunities that will be accretive to our adjusted funds from operation 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 acquisitions targets within adjacent U.S. states where we currently operate or new states with similar regulatory framework and characteristics as existing markets within our portfolio. Following this framework allows us to achieve measured growth while establishing a platform to acquire adjacent properties or enter new jurisdictions. We have applied this approach toward new markets, including Missouri, Indiana and Arkansas as well as our Illinois acquisition. All of these deals, along with our recent acquisition of the RV parks are expected to be an immediate accretive to our AFFO per unit and allow us to leverage management synergies from nearby operations and generate economies of scale. They are also in our existing markets or in jurisdictions that have similar demographic characteristics as our existing markets. Woodland Acres Pointe provides a great entry point into the state of Illinois. It is in close proximity to major employers and shopping. The state government is in the area's largest employer, along with the Springfield Public Schools, the City of Springfield, University of Illinois Springfield as well as private companies. Recreation areas include a beautiful Lake Springfield and acres of farmland and forest, and it's surrounded by a historic city center that includes the state capital, Abraham Lincoln's home and presidential library and museum. The resort communities we acquired are -- after the end of the quarter, provide us with economies of scale with our current footprint of Kentucky and Ohio. Glacier Hill Lakes RV Resort is located along I-75 and Wapakoneta, between Dayton and Toledo, Ohio. It is a 70-acre resort founded in 1974, which includes 368 lots loaded with lakes, swimming pools, splash parks, playgrounds, volleyball courts, picnic shelters and basketball courts. The community has a reputation for being one of the most family-friendly communities in the area, clean and Scenic RV resorts along Ohio. Oak Creek Resort is a family-orientated RV resort that has been in the existence for 51 years, including 99 lots and is located just 15 minutes from Greater Cincinnati International Airport and minutes from I-75 in Northern Kentucky. Amenities include swimming pools, basketball courts, playground and music pavilion. All lots have water, electric, Internet access within a lovely wooded setting. The community is near terrific family-friendly locations and Big Bone State Resort, The ARC Encounter, Creation Museum, Kentucky Speedway, Paul Brown Stadium, which is home of the Cincinnati Bengals and Great American Ballpark, home of the Cincinnati Reds. Now I'll turn it over to Eddie, our CFO, to talk about our financial performance for the quarter. Eddie?
Thanks, Nathan. Good morning, everyone. We generated revenue of $11.4 million during the second quarter, which was higher than forecast, primarily due to the acquisitions completed since our IPO. Net operating income and NOI margin was $7.6 million and 66.6% respectively, both of which were slightly higher than the forecast due in part to our cost-containment initiatives. Adjusted funds from operations and AFFO per unit was $3.7 million and approximately $0.22 per unit, respectively, which both exceeded the forecast by 61.4% and 19.1% during the quarter. Same community occupancy of 80.8% increased by 1.6% as of September 30 versus December 31, 2020. We believe this increase speaks to the merits of MHCs, specifically the affordability of MHCs, the high level of homeownership within our communities and in part by the ongoing COVID-19 pandemic.Rent collections for the third quarter were 99.2%, which was a slight increase quarter-over-quarter, but consistent with prior periods, demonstrating the strength and predictability of the MHC sector. As of September 30, our total lot occupancy was 81.9% and our average monthly lot rent was $365. Both of these metrics were within our expectations. And we ended the quarter with total cash and cash equivalents of $27.7 million with no near-term debt obligations. As of September 30, 2021, the REIT had a total weighted average interest rate of 3.44% and a total weighted average term to maturity of 10.6 years. With that, I'll now turn it back over to Kurt for some final remarks. Kurt?
Thanks, Eddie. We have been a public REIT now for a little over a year. We've been pleased by our operating and financial performance since that time. Our solid progress gave us the confidence to announce an increase to our monthly cash distribution to our unitholders. This decision also speaks to the strong fundamentals within the MHC sector, a sector that has shown consistent track record over the last 20 years. We are one of the Midwest region's largest MHC operators, or we are the only pure-play manufactured housing investment in the Canadian capital markets. Our REIT offers investors an opportunity to participate in a niche and stable market with significant growth potential. We certainly thank you for your time today, and I will now open up the line for questions.
[Operator Instructions] Your first question comes from Mark Rothschild, Canaccord.
There was a slight uptick in occupancy. Can you talk a little bit more about the trends you're seeing and what you think is realistic for over the next year or so?
Are you referring to occupancy trends or lot rent trends or both?
Occupancy.
Again, I think a 2% number, give or take, a little delta is a good number on occupancy trending. That's pretty consistent with the guidance we've given the whole time. Again, we have a home ownership model. And what we do know is that the competing market rents for multifamily have increased 10%, 12% or more in our markets. So that's probably going to continue to give us some tailwinds to be able to sell people homes so that they can have a reduced housing cost. So I think 2% there. Again, I think the average lot rent growth of 4% to 5% is a good guidance from the average monthly lot rent perspective.
Okay. Great. And I realize that is consistent with what you said in the past. And maybe I'm just pushing this a little more. I'm curious if you're seeing any changes based on what is going on in the U.S. housing market and with housing prices rising?
No. No, I can't say we've seen any substantive changes, but we haven't seen it either way though. It really -- the current customer that's coming in to buy homes is -- the creditworthiness of that customer is probably getting a little stronger, which allows us to sell them a home because they're being pushed towards manufactured housing is more affordability. But I can't look at you and say, oh, it's going to really move the needle on occupancy significantly. What it's going to do is keep it nice and constant, which is where I think we're at.
Okay. Great. And maybe just one more question. You spoke somewhat about the resorts acquisition earlier. To what extent should we view these as different than the core strategy of buying MHCs? And is this an area where we should expect to see more growth?
Well, we've been in the RV business for 20 years. We -- in the sense that we've had RV lots within our current communities, and we've always appreciated that they have a sense of space and amenity, they do well. We got those primarily through acquisition over the last 20 years. The RV resorts that we just purchased are in existing footprints and they're annual leases or seasonal leases very similar to our MHC operations that are all nearby these locations. So we know that we can operate them. They're long-standing RV resorts with 50-year histories of operations, and we're blessed to be able to pull them into our current operations. I think it's a growth potential. We are not in the RV campground hospitality business where it's an overnight stay, and it's more of a hospitality model. These locations are again, folks that move their manufactured home park models or RVs in and normally leave them all season long. So the annual leases is pretty similar. They're pretty amenity rich as well, and we think it's a great continuation of the business we have.
Your next question comes from Scott Fromson, CIBC.
A follow-on question to Mark's question on RVs. And I understand that they're mostly year-long leases, but how should we think about rate seasonality and maybe occupancy seasonality for these properties?
Yes, Scott. There is effectively not seasonality because, to your point, it is a 1-year lease. It's a full year lease. They'll be paying that lease monthly. They will have the opportunity to live in the RVs in the park throughout the year. So there's not really the seasonality as you would think of it from a traditional hospitality campground resort that would have a large portion of the revenue earned in a 3-month period. That's not the model that we're using here. Like I said, it's a full year lease where folks will live in the -- or live or stay in the resort throughout the year.
So occupancy doesn't vary much in the...
That's correct.
Okay. That's great. That's extremely helpful. And just a quick sort of housekeeping question. Are you able to disclose the average monthly rate for the rental homes over Q3?
Just the homes themselves?
Yes, exactly. Just the small portion of the portfolio that are rental homes.
Scott, I'll follow up with you after this call. I'll get that information to you. I don't have it right off the top of my head.
Your next question comes from Kyle Stanley, Desjardins.
Just sticking with the RV resorts for a second. I just wanted to get your opinion on what the opportunity set for similar assets would be in your markets?
Kyle, there is a plethora of these locations throughout the 7 states that we're doing business in. We are focused very much on our acquisitions of MH communities. And when these opportunities arise, we would purchase them. But we would only purchase properties that we feel very comfortable with. This is not a new salt. We've always had the RVs. But I would not expect us to buy a lot of these every year. We're just going to buy really good ones. Does that help you?
Yes. Yes, definitely. And then just taking a look at your rental home fleet. I mean, it's expanded to just over 1,100 homes with all the recent acquisition activity. Just wondering, do you have an updated target of rental homes for the portfolio? And maybe could you just provide an update on your home sales process?
Well, I'll take the rental home side of that, and then Nathan can speak to home sales. But we don't have a target because we would like to sell off our rental home fleet every day. We think the homeownership model is a superior model. And at the end of the day, we've gotten where I think we're around 1,100-ish homes for rent right now, again, all primarily driven through acquisition. And we'll continue to try to run those off over time. We'll never be out of the home rental business because it's just -- it's a part of the business every day. Especially as Nathan continues to grow our portfolio, we anticipate getting more rental homes. But we'd like from a target perspective to keep it under 10%, if we can. 10% of the total economic loss is what I'm talking about.
Yes. Home sales has been very good. That's over in Empower Park. Home sales have been very good this year. Just so you know, we've -- I think as of yesterday, we've sold 452 new homes and 173 of those were new. So it's been a good year. And we've actually sold 279 used homes, which many of those could have been, quite frankly, that were in the rental process.
About 100 of those -- close to 100 of those have been rental homes or former rental.
So we want to get up every morning and have 1 less rental in this portfolio. I mean that's my goal every morning I get up. And we've been able to do that many days this year.
Okay. Great. And just one last modeling question maybe for Eddie. The NOI margin came in near the high end of your 65% to 67% guidance. Can you just remind us, is there any element of seasonality in the OpEx in the third quarter?
Not specifically in the third quarter, the -- I'll take it back. The seasonality you're going to see is in the first quarter of the year for us and the fourth quarter, we have the opportunity for some weather events in our markets. So to the extent that we have a significant amount of snowfall, the work around that, cleaning streets, repairs and maintenance, that kind of work is -- it can drive some seasonality, drive some of the margin down slightly, which we saw some of that in Q1 of this year. In the Q2 and Q3 for us, that's where we see more temporary labor. We're used to cut grass and do the work throughout the communities. I would actually say that as you look at our margins, they're going to stay pretty constant. There is some seasonality there, but you have seasonality in the first and fourth quarter, and you have seasonality in the second and third quarter. So you won't see significant amounts of fluctuation quarter-over-quarter.What we're seeing, frankly, for the higher end of the NOI margins in Q3 is really related to some of the work that we've done over time, and we talked a little bit about it last earnings call, whereas we do these new acquisitions, the first 6 months to a year on a lot of these acquisitions, you're going to see lower NOI margins as we do our work to get those back into what we -- how we want to operate the business. Now that we're starting to get those kind of fully integrated, a number of those that we were doing Q4 of last year and early Q1 of this year, we're starting to get those kind of fully integrated, which is starting to see some NOI margin increases there as we get our submetering fully integrated and some of the other items within the communities.
Your next question comes from Joanne Chen, BMO.
Maybe just sticking on the margin front. I know you mentioned some of the cost-containment initiatives that you guys have in place. Did you find -- I know you guys talked about it last quarter, but were you guys able to surface a little bit more this quarter? And do you see any opportunities for more going forward?
Yes. I mean, again, the major kind of cost-containment work that's being done throughout our communities, and it continues to be implemented is around our water submetering system, the real-time lease detection that we've enabled. That's almost fully integrated within our existing portfolio. Generally, the opportunity there really is as we acquire the new communities, right? So when we're doing these acquisitions, a lot of times, if they're not submetered, which many of them are not, we'll probably get another 0.5 point in cap rate when we get our utility submetering fully integrated. And that's -- so that's where we really see the opportunities there. Right now, some of the cost-containment things that we're trying to do is really just trying to offset some of the inflationary pressures that we're seeing from a labor standpoint, whether it is trying to figure out ways to do centralized maintenance type work. Those kind of things that we're really trying to manage to be able to offset some of the inflation. So I mean the big cost-containment initiative still is going to be around the water submetering and that within the existing portfolio is pretty much complete.
That's great. No, I mean, it's good to see that you guys were able to continue to expand margins even though -- even within that inflationary environment. So that's encouraging. And I guess maybe just shifting gears on the acquisition side of things. Are you seeing more opportunities right now for acquisitions of what you call kind of the best-in-class? Or some -- are you seeing more opportunities in some communities that might require a little bit of work? And maybe on the acquisition side, could you comment on how the competitive environment might have changed since last quarter? Or has it been kind of steady since then?
I'll start, Joanne, with that. So it is very competitive right now. You do see some private equity out there. Some of them are going to places that we have no interest in going to and to cap rates that are very low, and I don't really always understand why they're going there, but they are. And -- but so to talk -- I mean but to talk about really what we're doing, we're finding top-of-class assets and we continue to find those. And I think that you will consider and see those in the future, what we're doing there. We are buying value-add as well. As we always say, value-add is one of those things that you can take some of it into, but you don't want too much of it. And so you will see us continue to see some value-add, but we are buying some really wonderful properties that our shareholders will be very pleased with.
All right. Okay. No, that's good to hear that about that volume. But -- and I guess, are there any -- congrats on entering a new market, but are there any new adjacent markets that you're seeing opportunities in right now still or?
No, Joanne, I do not see us going into any new states right now. There are plenty of opportunities within the 7 states we're doing business in. And I mean there's markets in there that we haven't even tapped yet. So we're excited about where we would be in this fourth quarter as well as next year.
Okay. I'm sure yes, there is a lot of -- it wasn't that you guys already have a wide footprint. So that's great. No, that's it for me. Congrats on a great quarter.
Thank you, Joanne.
Thanks, Joanne.
[Operator Instructions] Your next question comes from Himanshu Gupta from Scotiabank.
Nathan, you mentioned cap rates are low. I'm just wondering, I mean, how they have been trending over the last 6 to 12 months? And is the lot pricing being influenced by what we are seeing in the single-family housing market, which has been pretty strong?
Yes. We are seeing cap rates being suppressed. There is no doubt. But I -- we have been finding off-market deals because of our long-standing relationships with families that are exiting the market. And so we will -- I think that you will continue to see some of that in the future. But cap rates are -- I mean, they are going to places that we are -- that I would be, at points, uncomfortable.
Okay. Got it. And then on the similar lines in terms of the rent growth expectation, and I think, Kurt, you mentioned something like 4% to 5%. I mean given how strong the labor market is, unemployment is low, can you push rents higher than 4% to 5%? Because again, single family and some of the multifamily markets are pushing rents much higher than this range.
It's a fair question, Himanshu. The truth of the matter is, Nathan and I have been doing this a long time. And through many economic cycles, and we've seen multifamily rents expand. The difference between manufactured housing and true multifamily, which is where we get most of our customers from, is that we don't -- if we approach it our way, which is to trail them by 4% or 5% versus what they're going up 10%, 12%, 14% in multifamily right now, they will do concessions later when they overshoot the mark or they get overbuilt. We think we can actually hold our monthly lot rent in that 4% to 5% range and not have to do concessions later. And so I think it's a little slower model. We do typically trail them.Again, our customers move to manufactured housing, and they typically put a lot of money down. 1/3 of the customers buy the homes in cash. If they are financing them, they're putting down 20%, which a minimum $4,000. So to get them to do that, there's got to be an economic saving. We think it's about $50 to $100 comparable to that. So all the multifamily is doing for us right now is making that margin a little bit higher. It should push people to us. And we're very mindful to not get in front of the curve too much there. And -- but I think that's -- it's a good long-term strategy.
Got it. No, that's very helpful, makes sense as well. And then obviously, your occupancy expectation was, I think, 200 basis points. But if I look at the recent 2 acquisitions, Springfield, Illinois or in Missouri, the in-place occupancy was already like 94%, 97%. So what's the strategy there? Is it just pushing the rents and nothing much expected on the occupancy side?
The interesting thing about our business that we truly appreciate is that every community has got a different opportunity for the return, depending on what the original operator had built and created. For example, in Pin Oak, there's -- of those -- getting back to an earlier question, of the 500 lots and Pin Oak was in the high 90s, it was -- had a predominant amount of rental homes of the 500 lots. I think it was someplace north of 150. So the way we make better returns there is we run off the rental homes and then we start selling them off and getting better margins there. Again, that's a best-in-class opportunity. The one in St. Louis, there was some vacancy, and they had a little bit of rental homes, so we'll sell those off, but they actually had some vacancy that we pulled homes into that we're getting ready to sell right now. So again, in both of those cases, great opportunities. We'll get our lot rents because it is best-in-class. So we'll be at the higher end of the lot rent spectrum more than likely. But getting back to Nathan's point, the value-add is good work. It's work that we're accustomed to. We cut our teeth on it 26 years ago. You'll see us continue to do that as a portfolio within reason. And that will give us some continued nice momentum.
Awesome. And then on the acquisition pipeline, any number you can throw at how much acquisitions you can do next year? I know Nathan will be a busy man any which ways, but like $50 million, $100 million? What's your number?
Well, I would say that things aren't going to change much next year, and we're going to do between $30 million and $50 million.
That's kind of the guidance that we've given. We had some -- I think we've talked about it before, I mentioned we had some pretty big opportunities that came through this year that were big. The 1 portfolio that we're -- or the acquisition, that was $66 million. Those home runs come along sometimes, but it's hard to bank on that. So the guidance that we've given kind of during IPO, and we continue to believe is true is probably between $30 million and $50 million.
Okay. And then, Eddie, on the G&A side, obviously, you've expanded into 7 states now. Does G&A increase in response to your footprint expansion?
Slightly. I mean the only thing that we've really had to add is some more kind of middle management for that. So we've added a district manager there to help with the new states and one around the RV resorts. But for the most part, we've built a platform, and that's what we did for the first 3 years before the IPO, was build a platform that we'd be able to expand on without having to do significant additional investments into the G&A side. We're looking at a number of items of automation that we can help with for the back office. And again, we'll continue to add positions as needed. But most of those will not be a result of going into other markets. Those could be the results of just needing positions as we continue to mature as a business.
Your next question comes from Tal Woolley, National Bank Financial.
Let's just start with a question about supply chain. You've got people who need to buy homes. Is there any concerns about just the availability of homes or anything like that right now that could get in the way of your plans for this year?
We are not seeing that at our company because we have a long-standing relationship with our suppliers, -- with Clayton there being a true product that we buy from them that comes out of Tennessee as well as in Benton, Kentucky, Champion, who is a long-term provider of our property, we are the largest purchaser of homes from that location. And we've been very pleased with where we're at on that situation. Give you a little color. The last month, Champion Homes built over 48 multi-sectional 24-wides for us for our properties. And they have been a great partner. That is not something that they historically built at that property, but they went in and built those for us. And those are available -- will be available next week in our communities. And that allows us to sell a multi-sectional home on a historically single-wide lot. So we're not seeing that. We do hear of other people seeing that. And I could see if you were all over the country, and you were not -- you did not have the synergies that we have and a long-term standing relationship that, that could be a problem for you, but it is not a problem for us as a general rule.
And has home pricing shifting at all as a result of everyone's talking about inflation, all that stuff, but are you seeing any real changes in home pricing?
We are. We are. So I'll give you just some interesting color on that. We are probably up somewhere between -- a manufactured home is up somewhere between the 36% to 42% year-over-year. But our primary home that we sell is a 28 x 56 multi-sectional home. And that home went, from last year to this year, from 38,000 to 54,000 coming out of the factory. It's quite -- it's quite a push up.
And so -- but no concerns then about volume, I guess, even with that kind of rise?
Well, I mean you always...
Well, the offsetting single-family homes, though, Tal, is increasing even more. Right? So the product -- the opposing product has increased even more. And it continues even still to push folks down to us. So I don't foresee that being a huge concern.
It's interesting, Tal. The competing markets, the credit criteria in the computing stick-built market is actually as tight as it was post-Great Recession. Our credit underwriting for our customers really hasn't changed. So what's happening is people -- that not only are the houses and stick build housing, which is where people might migrate to is they come from multifamily and they migrate to stick build at some point, some portion of that. But when you look at that, that's a very hard transition. And so because the credit underwriting is stricter and for those people at stick-built housing and the homes have gone up, so the down payment requirements are substantively more. Our customers are putting down $4,000 when they're buying a new home, maybe up to $10,000, $12,000. Stick-built housing in our market, probably the minimum down payment is $20,000.
Right. Okay. And then just another question about like financing strategy for the acquisitions. A lot of times when we have stories here in Canada that are built, they're aggregating assets sort of one at a time through off-market deals like you guys are doing. They often use vendor take-back equity to help the seller defer taxes.And I'm just curious, like, is that something you've ever given thought to? Because you guys are sort of at the size where -- not that I want to complain about raising equity in the public markets, but it is costly for you when you're smaller in scale and it can also help you on the pricing from the vendor. Is that a strategy that you can employ because I'm just not sure because you guys are in the States, whether that actually works the same as it would here in Canada.
It's an interesting question. So again, having been doing this for 26 years, we've done every conceivable type of structure to help a seller in the past, and we're very flexible for them. I think the truth of the matter is we have 1031 like-kind exchanges in the United States that are still active and customers, sellers will absolutely use that, and that allows them to actually like-kind exchange out of a sale and into another asset that's similar without paying taxes. So I don't think we have quite the Canadian dynamic because of that right now. But I can tell you, it's an interesting moment as we look forward because the REIT structure itself, not only did it help us with our cost of capital, which was tremendous as it continued to decrease it. But the operating units as a continued like-kind kind of exchange for customers may become more important as we march down the road.
And I can't remember right now, there's no -- like with all the legislation getting passed in the States, nothing's going after 1031 exchanges right now or modifying those, right?
I'll let Nathan comment on that. He's our governmental affairs specialist.
No, we're not. There's a lot of rhetoric on Capitol Hill right now about tax increases and how to -- and which ones those might be. And quite frankly, they're all over the board. But right now, we're not seeing any real movement in that.
Tal, I think the opportunity for us in the operating units could be, but again, this is could, because we don't know where that tax -- capital gains tax is going. But if the capital gains tax takes a significant increase as part of the new tax legislation, I think it could be a tool that would be very attractive to sellers when they look to exit. And the beauty of it would be for us, if that's the case, we're the only ones in our markets that have the ability to make that, to offer that to sellers, which I think really could be a strategic advantage for us.
Okay. And then just lastly, as we sort of -- you still got 1 more quarter to go in this year. And then Q1, you'll sort of -- Q1 would be when you sort of start reporting like a true same community NOI number year-over-year. Is that correct?
Correct. Q4 will actually have same community NOI year-over-year, right? So I mean we did report in Q4 of last year. So we would have that information. We won't be -- next quarter, we won't be comparing to budget, we'll be comparing to prior year.
Okay. And fair to say that you would expect same property NOI to sort of track rent growth, maybe a little bit more if you get some costs -- if you continue to get cost savings out of the pool?
Yes. I mean the cost savings, yes, I mean, like I said earlier, the rent growth, that piece of it makes sense to me. And right now, what we're seeing is kind of the cost-savings initiatives really offsetting inflation. So I mean tracking close to the rent growth would be kind of our expectation.
There are no further questions at this time. I will turn it back to Mr. Keeney.
Thank you, operator, and we certainly thank everyone for participating today. Please feel free to reach out to our Investor Relations team at ir@flagshipcommunities.com if you have any further questions. Have a great day.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.