CALGARY, July 23, 2013 /CNW/ - Mainstreet Equity Corp. (TSX: MEQ) is
pleased to report that it continues to deliver significant shareholder
value, with the third quarter in its 2013 fiscal year marking the 11th consecutive quarter of double-digit, year-over-year growth in funds
from operations (FFO) and net operating income ("NOI"). With a lengthy
track record of non-dilutive growth, Mainstreet is also showing
operational improvement, reflected in better rental rates and
diminished rental incentives on existing properties.
"Nothing was easy in the third quarter. Utility rates are rising,
mortgage rates are lifting from their lows and Alberta, our core
operational area, was hit by historic floods. Yet Mainstreet continues
to thrive and grow," says Bob Dhillon, Chief Executive and Founder. "We
are locking in discounted electricity rates and directing significant
new funds to refurbishment of existing facilities, which we expect will
allow us to maintain our streak of NOI growth. We have shown a
commitment to relentlessly pursuing improvement, but still see room for
even better financial performance as we move to lock in better interest
rates on a large number of mortgages in coming quarters. That model has
made us a top-performing Canadian real estate company over the past
decade, and we continue to see ample opportunity in today's market."
RESULTS FROM CONTINUING OPERATIONS
Funds from operations in Q3 2013 rose 12% to $5.3 million, up from $4.7
million in Q3 2012. Quarterly rental revenue increased 15% to $19.8
million, from $17.2 million in Q3 2012. Net operating income climbed to
$13.2 million, a 10% increase from $12.0 million in Q3 2012.
Mainstreet achieved these results while acquiring 738 unstabilized units
in the past year. Same-asset revenues rose 7% to $17.1 million, up from
$15.9 million in the comparable quarter, while vacancy in those
properties dropped to 6.9% in Q3 2013 from 7.6% in Q3 2012.
NON-DILUTIVE ORGANIC GROWTH
Mainstreet's total continued-operations investment portfolio has grown
to 8,170 units, up 10% from 7,432 units at June 30, 2012. In the third
quarter, Mainstreet acquired an additional 394 units in Edmonton at a
cost of $42.3 million.
FINANCING
Interest rates near historic lows present a remarkable opportunity to
refinance existing mortgage debts at low interest rates. For
Mainstreet, this results in a marked reduction in interest expenses,
our number one cost, while raising a substantial amount of low-cost
capital for growth. It is a powerful double win that Mainstreet is
racing to seize by actively refinancing a large number of mortgages. In
Q3 2013, Mainstreet refinanced $19.1 million in mature mortgages into
10-year, long-term CMHC-insured mortgage loans at an average interest
rate of 2.8%, saving approximately $276,000 in annual interest expenses
while also raising $3.9 million in additional funds for future growth.
Mainstreet has also obtained approval from CMHC to take out $23.1
million in new 10-year insured mortgages on five Abbotsford properties,
as well as approximately $40 million (28%) of mortgages maturing in
2013 and 2014. Refinancing is expected to raise an additional $10
million. At an estimated interest rate of 3%, Mainstreet expects an
annualized interest expense savings of approximately $450,000.
CHALLENGES
As Canada's multi-family rental pool ages, Mainstreet is setting out on
a significant improvement campaign. For the nine-month period ended
June 30, 2013, Mainstreet spent over $1 million on capital improvement
projects. For FY 2014, Mainstreet expects to spend approximately $4
million on improvements to items such as roofs, boilers and windows. To
combat unstable utility rates, Mainstreet recently booked a five-year
forward electricity contract at 6.5 cents per kwh for our Alberta
portfolio, roughly 18% below prevailing rates. As mortgage interest
rates also rise, we have escalated our refinancing program. Although
June's historic floods in Alberta have not affected Mainstreet's
operations directly, they may pose further challenges. Substantial
re-construction programs stand to add more tension to an already tight
construction labour market. Mainstreet is looking for alternative
labour sources.
OUTLOOK
For nearly three consecutive years now, we have shown our ability to
continually improve performance. But we believe there is much more to
come, with substantial room remaining in the current portfolio for NOI
growth through improvements in vacancy rates, reductions in rental
incentives and increases in rental rates after stabilization.
Mainstreet holds two other powerful financial levers: $145 million in
mortgage debt maturing in 2013 and 2014 and $100 million in funds
available for continuing expansion. The $145 million in mortgages
currently bear average interest rates of 4.15%. In today's market,
Mainstreet expects to be able to refinance mortgages at rates near 3%.
The impact of this refinancing is hugely advantageous for Mainstreet:
we are able to free additional funds through up-financing, while still
reducing interest payment obligations. In addition, Mainstreet holds
$100 million in available funds through a combination of existing cash
balances, credit facilities, clear title assets and the refinancing of
existing mortgages. That war chest leaves Mainstreet fully equipped
financially for continued organic growth in existing western Canadian
markets and for possible expansion into the U.S.
About Mainstreet
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, Saskatoon and the Greater Toronto Area. Mainstreet's common
shares are listed on the Toronto Stock Exchange under the symbol MEQ. As of July 23, 2013 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
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, expansion into the United States and fluctuations in rental
prices, energy costs and foreign exchange or 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