CALGARY, Feb. 11, 2013 /CNW/ - Mainstreet Equity Corp. (TSX: MEQ) is pleased to report that the first quarter in its 2013 fiscal year marks the ninth consecutive reporting period with double-digit year-over-year growth in net operating income ("NOI") and funds from operations ("FFO"). Mainstreet continues to pursue growth in western Canada and while making improvements in vacancy rates and rental revenues across its same-asset operations.
"Mainstreet has now entered its third year in a streak of posting better numbers in all the places that matter," says Bob Dhillon, Chief Executive Officer and Founder. "We are growing in Canada's best property markets, and we're doing it without diluting shareholders' equity. At the same time, our rigorous attention to costs is showing real results, with solid improvements in operating performance -- although we still see plenty of run-way for shareholders to realize even better results from our existing rental portfolio. We believe we will accomplish this through improvement in occupancy rates, reductions in rental incentives and increases in rental rates following stabilization or renovation of newly acquired properties. Mainstreet is also positioned to further capitalize on the great opportunities we see in the western provinces with over $100 million investable resources available for further growth without any dilution in shareholders' equity. We also believe wise past investments are also poised for major gains: in Edmonton, for example, the decision to construct a new arena complex will create major new redevelopment in a neighbourhood where Mainstreet already owns 75 properties with 1,850 units. All of these factors, we believe stand to bring further improvement to NOI."
This press release should be read in conjunction with Mainstreet's management's discussion and analysis (MD&A) and unaudited financial statements and accompanying notes for the quarters ended December 31, 2012 and 2011, which provide detailed analysis of the Corporation's financial results (www.mainst.biz).
RESULTS FROM CONTINUING OPERATIONS
In Q1 2013, rental revenue increased 18% to $18.1 million, from $15.3 million in Q1 2012. Net operating income increased 19%, climbing to$12.2 million from $10.3 million a year ago. Funds from operations improved by 22%, hitting $3.9 million, before U.S. investment fund expenses and a stock option cash settlement expense. This compares to $3.2 million in Q1 2012, an improvement driven by decreasing rental incentives and higher rental rates. Same-asset revenues rose 10% to$16.4 million, up from $14.9 million. Same-asset operating income increased by 11%, while same-asset vacancy fell to 7.5% from 9.5%. Mainstreet achieved these results while acquiring 608 unstabilized, or non-renovated, units since Q1 2012. Despite a rise in utility prices, property tax and unstabilized properties, Mainstreet maintained its net operating margin at 66%.
Mainstreet's overall portfolio grew by 3% to 8,390 units (including 664 units held for sale) as compared to 8,180 units as of September 30, 2012. Subsequent to Q1 2013, Mainstreet acquired an additional 50 units in Saskatoon. As of today, Mainstreet has 8,036 units (including 260 units held for sale) with a market value of over $1 billion. Mainstreet has, subsequent to the Q1 end, completed the sale of three properties (404 units) in Ontario for $47-million in gross proceeds.
Mainstreet continues to face above-market vacancy rates, below-market rental rates, substantial churn and bad renter debt, particularly during the stabilization process on those newly acquired unstabilized properties. These factors have long accompanied Mainstreet's unique "Add Value Business Model." At the same time, Mainstreet faces rising property taxes and energy costs across its portfolio.
Mainstreet has built a broad portfolio of properties that provide a stable foundation for cash generation. But Mainstreet believes there remains plenty of room for improvement that will continue to enhance corporate performance. As of the quarter end date, the Corporation has 1,750 unstabilized units. Progress in renovating these units will grow the rental pool and improve key operating metrics. Broader market dynamics provide reason for further optimism. Mainstreet believes western Canada is entering a dynamic rental cycle that should bring further improvements in vacancy rates, rental rates and rental concessions.
Although sale of properties in Ontario will reduce the Mainstreet's portfolio by 664 units and will have a near-term impact on NOI and FFO, the sale is expected to generate a substantial amount of cash which will enable Mainstreet to press its advantage in Western Canada, which continues to provide strong employment, compelling growth and opportunities for acquiring mid-market properties that fit in the Mainstreet add value business model. At the same time, Mainstreet believes the time has come to enter the U.S. property market to capitalize on the tremendous potential there. Mainstreet has substantial resources to capitalize on these opportunities, with cash, available credit and clear-title properties, which can be financed to liberate capital, providing an investable resource of over $100 million.
Mainstreet is also improving its existing financial obligations, and has obtained approval from the CMHC to refinance approximately $43 million (66%) of the mortgages maturing in 2013. This refinancing raised approximately $8 million in additional funds while saving annualized interest expenses of $550,000 and cash flow of $430,000 respectively. At the same time, Mainstreet continues its concerted effort to save costs and has begun the purchase of high-value items, such as windows, from China.
Mainstreet is a Calgary-based, growth-oriented real estate corporation focused on the acquisition, redevelopment, repositioning and asset and property management of mid-market apartment buildings. The Corporation currently owns and operates residential rental units, including apartments and townhouses, in the B.C. Lower Mainland, Calgary,Edmonton and Saskatoon. Mainstreet's common shares are listed on theToronto Stock Exchange under the symbol MEQ. As of December 31, 2012 there were 10,465,281 common shares outstanding.
The above disclosure may contain forward-looking statements that involve substantial known and unknown risks and uncertainties.These statements relate to analysis and other information based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. In particular, statements concerning estimates related to future acquisitions, dispositions and capital expenditures, reduction of vacancy rate, increase of rental rates, future profitability, timing of refinancing of debt and completion of renovations, increased cash flow, the Corporation's liquidity and financial capacity, the Corporation's anticipated funding sources to meet various operating and capital obligations, expansion into the United States. These forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the Corporation's control, including: the impact of general economic conditions in Canada, industry conditions, increased competition, the lack of available qualified personnel or management, equipment failures, stock market volatility, availability of capital for stabilization programs, unoccupied units during renovations, credit risks of tenants, expansion into the United States and fluctuations in rental prices, energy costs ,foreign exchange and interest rates. The Corporation's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or, if any of them do so, what benefits the Corporation will derive from them.
SOURCE: Mainstreet Equity Corporation