CALGARY, Dec. 10, 2014 /CNW/ - Mainstreet Equity Corp. ("Mainstreet" or "Corporation") (TSX: MEQ) is pleased to announce our 16th consecutive quarter of double-digit growth, which caps a strong performance year. On an annual basis, net operating income ("NOI") was up 16% to $60.1 million. Funds from operations ("FFO") from continuing operations rose 34% to $25.6 million, before stock option cash settlement expenses. Fully-diluted profit per share climbed 7% to $5.97, while rental revenue was up 16% to $90.4 million. On a same-asset basis, rental revenue rose 8% to $81.1 million and NOI was up 8% to $54.2 million. The average vacancy rate at same-asset properties fell from 9.1% to 6.7%, while the average rental rate rose 8% to $900 with an operating margin of 67%.As of December 1, 2014, the vacancy was 5.2% excluding 77 units under complete reconstruction.
During the year, Mainstreet refinanced $105.8 million with an average interest rate of 4.2% matured debts to 10-year, long term CMHC-insured mortgages, at an average interest rate of 3.3%. The refinancing reduced annualized interest expenses by $1.2 million. We also financed eight clear titled properties for $21 million. These financings raised an additional $52 million in capital. Securing fixed-rate mortgages mitigates the risk of fluctuating interest rates and increases the average term of Mainstreet debt to 7.8 years.
"This was a standout year for Mainstreet. Even as we continue the disciplined growth that has been our hallmark, we are making valuable strides in the way we operate our existing portfolio," says Bob Dhillon, Chief Executive Officer and founder of Mainstreet. "We have built a small organization into a medium-sized company with the machinery to generate strong reoccurring cash-flow, all while maintaining undiluted growth that doesn't come at the expense of shareholders."
Mainstreet now manages a $1.26 billion portfolio of properties that generates consistent and rising returns. We own 8,780 residential units, a 7% increase over fiscal year 2013. The market value of the portfolio, based on independent third party appraisals, is up $130 million or 12% from the previous year. Following the close of the fiscal year, we added another 48 units to our portfolio, for a total cost of $4.6 million.
CHALLENGES
Mainstreet continues to face rising cost pressures, particularly in property tax and utility prices. More broadly, Mainstreet's size and scale add to the challenge of finding the large numbers of new properties it now takes to achieve significant growth. Our disciplined approach means we only buy buildings to which we can add value. This, however, provides an edge when market conditions support growth.
OUTLOOK
We see several important reasons to be confident that Mainstreet will continue to demonstrate strong, non-dilutive growth.
We are currently stabilizing 1,036 units, and expect to see NOI growth as they are renovated and stabilized and then reintroduced to the rental pool. In 2015, we expect to refinance $52.2 million in mortgages with an average interest rate of 4.5%. At current rates of roughly 3%, securing new mortgages is expected to lower interest expenses and generating an additional capital that can be used to fund growth.
We believe that the recent drop in oil prices will provides new opportunity for Mainstreet to maintain, and possibly accelerate, growth. We expect the oil pullback to have a cooling effect, most notably in labour rates for skilled workers, and look forward to a more balanced economic situation. This should provide advantages in acquiring assets and reducing cost escalations.
We believe that we have the ability to seize this opportunity, with a total of $100-million in liquidity, including an $85 million line of credit that is linked to our clear title assets. Our debt-to-book level remains at a comfortable 48%, giving us room to finance expansion. We believe our liquidity position provides us the borrowing capacity to fund nearly $400-million in acquisitions.
We believe that our portfolio of assets provides a series of further levers for growth, from improvements in the way we operate to empty spaces that can, at low cost, be transformed into revenue-generating rental units. In 2014, we began the transformation and addition of 17 units in our portfolio. We have amassed 89 apartment properties in the Edmonton Arena District, a redevelopment that promises to reshape the city's core in ways that will add to its attractiveness and value as a place to live. We are increasing cycle times, showing our effectiveness as renovators of even large projects, such as a 365-unit tower in Edmonton that we overhauled in a year resulting in an increase in revenue of 56% for this property. We are developing unified software and building a call centre to boost our ability to spot and respond to issues. We are extracting hidden value, by transforming under-utilized amenity and retail spaces into apartments. We are also assessing the potential for sales at properties in Vancouver/Lower Mainland markets where we already hold valuable condominium titles.
Finally, we believe that Western Canadian markets that are our home turf remain among the most robust in the country, with strong in-migration, low vacancies and rising rental rates.
Forward-Looking Information
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 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 of labour and costs of renovations, but without limitation, 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 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.
Management closely monitors factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements and will update those forward-looking statements where appropriate in its quarterly financial reports.
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
