CALGARY, May 12, 2015 /CNW/ - Mainstreet Equity Corp. ("Mainstreet" or the "Corporation"), an add-value, mid-market consolidator of apartments in Western Canada, is pleased to announce its 18th consecutive quarter of year-over-year double-digit growth in pre-tax funds from operations ("FFO") and net operating income ("NOI"). We are particularly pleased by our strong performance in this quarter, highlighted by a 39% increase in pre-tax FFO year-over-year.
"This was an outstanding quarter for Mainstreet and further evidence that our portfolio is well positioned to perform in all market cycles," says Bob Dhillon, Founder and Chief Executive Officer of Mainstreet. "The fall in oil prices has created uncertainty in some of our core markets, but we remain on course. We are increasing our revenue, expanding our portfolio, and creating value the way we always have – by executing a disciplined growth strategy without diluting shareholder value and optimizing our portfolio for maximum profitability."
Mainstreet continues to increase value for investors by refinancing large volumes of mortgages at all-time low interest rates, buying back and cancelling our own shares, capitalizing on market uncertainty to grow through strategic and opportunistic acquisitions and, finally, pursuing better NOI and FFO performance.
In Q2 2015, pre-tax FFO was up 39% to $6.9 million, an increase from $4.9 million in Q2 2014. FFO per basic share increased 26% to $0.66 from $0.47 in Q2 2014. NOI from continuing operations increased 20% to $16.2 million, while growing 13% to $15.2 million on a same asset basis. Mainstreet's revenue from continuing operations rose 13% to $25 million, up from $22 million in Q2 2014. The overall and same assets operating margins improved 300 bps to 65%, from 62% last year. The same asset vacancy rate fell year-over-year to 6.0% from 8.2% in Q2 2014. During the quarter, we acquired 331 units for $33.7 million.
In Q2 2015 Mainstreet refinanced $17.3 million in maturing mortgages at a weighted average interest rate of 2.4%, achieving $86,000 in annual interest expense savings while also raised additional funds of $13.1 million.
Under our normal-course issuer bid, Mainstreet repurchased and cancelled shares at a weighted average price of $37.15 per share in the quarter.
With 59% of the Mainstreet portfolio in Alberta, we are mindful of the uncertainty in markets, and are monitoring the economic environment while keeping a close watch on costs, operating margins and marketplace conditions. To this point, Mainstreet has not experienced a material impact to operations from changes in economic conditions.
The economic impact of falling energy prices in our core markets remains uncertain and, if it persists, may negatively affect vacancy rates and rental concessions. Mainstreet is not immune from broader economic forces. However, we believe any future impact should be considered against a series of positive counter-factors, including low natural gas prices, supportive conditions for rental markets and a drop in interest rates to historically low levels. Interest rates have fallen by 114 basis points year-over-year.
Liquidity and promising coastal markets
With the ongoing economic uncertainty in Alberta and Saskatchewan, we have become more conservative in our underwriting criteria in these regions, although we remain prepared to move quickly when we find opportunities. We continue to see supportive conditions for further expansion in the British Columbia Lower Mainland. We anticipate that we will have approximately $85 million in liquidity available by the end of the current fiscal year.
Plenty of remaining run-way
1) We estimate our current outstanding NOI gap at $7.5-million, which is based on the gains possible by achieving a 95% occupancy rate after stabilization of the existing portfolio at its full market rent.
2) For the remainder of fiscal 2015, we plan to refinance $48 million of mortgages maturing in the current fiscal year. With an estimated interest rate of 2.3%, we estimate the refinancing will result in a further savings in annualized interest expense of $830,000 while raising additional capital of approximately $38 million.
3) The Mainstreet business model creates value that enables consistent growth through acquisitions without diluting shareholder value. With our substantial liquidity position, we have the capacity to maintain growth in our core markets.
4) Mainstreet shares currently trade at approximately $37 per share. Management believes that the current share price is substantially below the corporation's Net Asset Value (NAV) and intends to continue purchasing and cancelling shares on an opportunistic basis.
Certain statements contained herein constitute "forward-looking statements" as such term is used in applicable Canadian securities laws. 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 rates, increase of rental rates and rental revenue, future income and profitability, timing of refinancing of debt and completion, timing and costs of renovations, increased funds from operations and cash flow, the Corporation's liquidity and financial capacity, improved rental conditions, future environmental impact ,the Corporation's goals and the steps it will take to achieve them ,the Corporation's anticipated funding sources to meet various operating and capital obligations and other factors and events described in this document should be viewed as forward-looking statements to the extent that they involve estimates thereof. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions of future events or performance (often, but not always, using such words or phrases as "expects" or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "estimates" or "intends", or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved) are not statements of historical fact and should be viewed as forward-looking statements.
Such forward-looking statements are not guarantees of future events or performance and by their nature involve known and unknown risks, uncertainties and other factors, including those risks described in this Annual Information Form under the heading "Risk Factors", that may cause the actual results, performance or achievements of the Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks and other factors include, among others, costs and timing of the development of existing properties, availability of capital to fund stabilization programs, other issues associated with the real estate industry including availability but without limitation of labour and costs of renovations, fluctuations in vacancy rates, unoccupied units during renovations, rent control, fluctuations in utility and energy costs, credit risks of tenants, fluctuations in interest rates and availability of capital, and other such business risks as discussed herein. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking statements include, among others, the rental environment compared to several years ago, relatively stable interest costs, access to equity and debt capital markets to fund ( at acceptable costs) and the availability of purchase opportunities for growth in Canada. Although the Corporation has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, other factors may cause actions, events or results to be different than anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could vary or differ materially from those anticipated in such forward- looking statements. Accordingly, readers should not place undue reliance on forward-looking statements contained herein.
Forward-looking statements are based on management's beliefs, estimates and opinions on the date the statements are made, and the Corporation undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions should change except as required by applicable securities laws or as otherwise described there in ,.
Certain information set out herein may be considered as "financial outlook" within the meaning of applicable securities laws. The purpose of this financial outlook is to provide readers with disclosure regarding the Corporations reasonable expectations as to the anticipated results of its proposed business activities for the periods indicated. Readers are cautioned that the financial outlook may not be appropriate for other purposes.
SOURCE Mainstreet Equity Corporation