CALGARY, May 13, 2014 /CNW/ - Mainstreet Equity Corp. ("Mainstreet" or
"Corporation") (TSX: MEQ) is pleased to report the 14thth consecutive quarter of year-over-year double-digit increases in funds
from operations ("FFO") and net operating income ("NOI"). It was an
especially strong performance amid a frigid and prolonged western
Canadian winter, which came at a time of substantially increased
heating and weather-related expenses. Alberta and Saskatchewan both
experienced their coldest winter in decades, as an example. At the same
time, natural gas expenses increased by approximately 60% compared with
the same quarter last year, adversely impacting the overall operating
margin by over 3%.
"It's no secret that this was a tough winter. But we kept our growth
streak going and our same assets properties NOI improved by 5%, which
again shows the strength of our core add-value business model," says
Bob Dhillon, Chief Executive Officer and founder of Mainstreet. "Now,
with spring around the corner, we are ready for the high rental season.
We operate in very strong markets, and see great opportunities for
stronger rental rates and even better vacancy numbers. We are picking
up the pace on expansion, and mortgage rates are falling once again. We
see our run-way room getting longer and longer."
Results
In Q2 2014, Mainstreet's revenue from continuing operations rose 16% to
$21.7 million, up from $18.7 million in Q2 2013. Same asset rental
revenues climbed 9% to $20.0 million, from $18.4 million in Q2 2013.
NOI from continuing operations increased 12% to $13.6 million, while
growing 5% to $12.4 million at same asset properties. Funds from
continuing operations were up 17% to $4.9 million, an increase over
$4.2 million in Q2 2013. The same asset vacancy rate fell to 7.1% from
9.7% in Q2 2013, a 20 basis-point improvement over Q1 2014.
From the beginning of the fiscal year , Mainstreet has expanded its
portfolio by 5.3%, an acceleration in growth. During the second
quarter, we refinanced approximately $ 48 million in matured mortgage
loans to long-term 10-year, CMHC-insured mortgages at an average
interest rate of 3.6%. This refinancing reduced annualized interest
expense costs by approximately $300,000, while freeing an additional
$10 million in funds.
Challenges
Mainstreet faces rising costs, property tax pressures and increasing
utility prices, all of which form significant challenges. To mitigate
these challenges, Mainstreet has entered into a rate-protected natural
gas contract that caps future gas costs at $4.50 per GJ.
Outlook
We see ample to reason to believe our growth will continue upwards,
particularly with winter now behind us. We believe coming months will
feature a strong rental season which Mainstreet is well-positioned to
benefit from. We see four reasons for optimism.
1. Same-asset properties NOI Run-way
A strong economic recovery in western Canada has left the financial
crisis far behind, while in-migration is adding to housing demand. All
of this creates an environment for strong NOI growth at same-asset
properties, enabling Mainstreet to achieve even better performance by
further reducing vacancy rates, cutting rental concessions and
continuing the process of stabilizing, or completing renovations on,
apartment holdings.
2. Low-cost debt mitigates interest risk and provides low cost of
capital for future growth
The recent surge in mortgage rates has begun to ease, with 10-year rates
falling to 3.3% from a recent high of 3.9%. In FY 2014, Mainstreet
expects to refinance $96 million in maturing debt. In doing so,
Mainstreet expects to achieve substantial savings in interest expenses
and raise additional funds for future organic growth. Refinancing also
substantially extends the average maturity period of the entire loan
portfolio.
3. Strong liquidity position for organic and non-dilutive growth
Mainstreet maintains substantial funds to support continued
acquisitions, including an $85 million line of credit, holding
substantial amount of clear-title properties, in addition to the
continued liberation of cash through refinancing.
4. Western Canada: Strong net migration, GDP growth and low vacancy rate
are setting favourable market condition for a higher rent
In Calgary, March saw a 9.9% increase in single-family home prices over
the previous year, while Saskatoon prices were up 5.4%. Higher home
prices have the dual effect of pushing up demand for rental
accommodations, while also supporting higher rental rates. Furthermore,
western Canada leads the nation in net migration numbers and GDP
growth. Taken together, these developments set the stage for solid
increases in rental rates. Mainstreet expects 2014 to see rent
increases of our portfolio, which will serve as an important driver of
continued growth.
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 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