CALGARY, July 17, 2014 /CNW/ - Mainstreet Equity Corp. ("Mainstreet" or "Corporation") (TSX: MEQ) is pleased to announce that the third fiscal quarter of 2014 marks our 15thth consecutive quarter of year-over-year double-digit increases in funds from operations ("FFO") and net operating income ("NOI"). Vacancy rates are declining, revenue is rising, and Mainstreet maintains significant room for future growth, through revenue increases at existing properties and acquisitions in cities with strong markets for mid-sized apartment buildings.
"We expected a solid spring season, and were pleased to see a strong quarter. As the economy recovers, Mainstreet is well-positioned with plenty of growth run-way and the operational expertise to back it up," says Bob Dhillon, Chief Executive Officer and founder of Mainstreet. "And, like always, we are convinced our apartments are in the best places in Canada. People are moving west to where the jobs are, creating lots of demand and a healthy property market, all of which is good for the Mainstreet business model."
Results
In Q3 2014, Mainstreet's revenue from continuing operations rose 16% to $23.0 million, up from $19.8 million in Q3 2013. Same asset rental revenues climbed 8% to $20.4 million, from $18.8 million in Q3 2013. NOI from continuing operations increased 15% to $15.3 million. Funds from continuing operations were up 26% to $6.6 million, an increase over $5.3 million in Q3 2013. Funds from continuing operations per basic share increased by 26% to $0.63 from $0.50 in Q3, 2013. The same asset vacancy rate fell to 6.6% from 8.7% in Q3 2013.
In Q3 2014, Mainstreet acquired 298 residential apartment units for $27.2 million. During the quarter, we refinanced $38 million in matured mortgage to long-term 10-year, CMHC-insured mortgages at an average interest rate of 3.21%. On a year-to-date basis, we have refinanced $95 million in mortgages to long-term 10-year, CMHC-insured mortgages and have achieved annualized interest expense savings of $835,000. Through this process, we have liberated an additional $16.7 million in funds.
Challenges
Mainstreet continues to face rising cost pressures, particularly in property tax and utility prices. The renovation and repositioning of properties - the process of stabilizing buildings -- also temporarily raises the overall vacancy rate and lowers stabilized NOI. Mainstreet's unstabilized portfolio conversely constitutes one of its greatest sources of opportunity.
Recent changes in immigration laws make recruitment of foreign workers more difficult and expensive. We expect this to exacerbate worker shortages in western markets while driving up labour costs.
Outlook: NOI growth from new assets
In the past 16 years, the value of Mainstreet's portfolio has grown at an average 31% compound annual rate of growth, and is now valued at $1.2 billion. Our confidence in our business model's future success is rooted in a firm belief that this growth will continue, and that we retain a lengthy run-way for NOI and FFO expansion. This is also why Mainstreet has avoided a dividend strategy. We continue to see significant opportunities to deploy capital and add value to investors that can generate substantial returns.
Growth from same-asset robust operating environment
May unemployment in British Columbia was 6.1%, with Alberta at 4.6% and Saskatchewan at 3.7%, all well below the 7% national average. In-migration is bringing large numbers of new arrivals, as Alberta added 81,800 jobs in the past year. Several recent measures introduced by the Canada Mortgage and Housing Corp. have restricted buyers and restricted new housing supply.
These developments have set the stage for future rental housing supply constraints, reductions in vacancies and increases in rental rates. Mainstreet expects 2014 to bring rental rate escalation across our portfolio, which will serve as an important driver of continued growth.
Low-cost debt mitigates interest risk and provides low cost of capital for future growth
In this fiscal year, we have refinanced $65 million of mortgage debt, in addition to a $30 million mortgage maturing in FY 2015, into long-term 10-year, CMHC-insured mortgages at an average interest rate of 3.37%. The refinancing has created annualized interest expense savings of $835,000 and liberated an additional $16.7 million in funds.
Growth from new assets
Mainstreet holds an $85 million line of credit, which is linked to our clear title assets, and continues to liberate significant volumes of cash through refinancing. Since the beginning of the financial year 2014, Mainstreet has acquired 553 units for $54.9 million, representing 6.7% growth of the portfolio. There is room to grow in the western Canadian mid-sized apartment space.
Some of Mainstreet's potential value doesn't appear in our financial statements.
Mainstreet has also accumulated a number of assets that can underpin future growth but are not currently represented in financial statements. They include a parcel of development land in Abbotsford, B.C.; residual land that can be used for additional residential units; the potential to convert unutilized commercial space to residential suites; and 1,107 condo-titled units in our portfolio that can be converted into condo-units for re-sale, 200 of them in the B.C. Lower Mainland.
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 and interest rates associated with refinancing of debt and completion, timing and cost 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, 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 involve known and unknown risks, uncertainties and other 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, but without limitation, fluctuations in vacancy rates, unoccupied units during renovations, fluctuations in utility and energy costs, credit risks of tenants, fluctuations in interest rates and availability of capital, availability of labour and costs of renovation and other such business risks as discussed herein. 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.
SOURCE Mainstreet Equity Corporation
