Mainstreet Equity Corporation - 13th consecutive quarter of double-digit year-over-year increases in FFO and net operating income
CALGARY, Feb. 12, 2014 /CNW/ - Mainstreet Equity Corp. ("Mainstreet" or "Corporation") (TSX: MEQ) is pleased to report a 67% increase in funds from operations ("FFO") in the first quarter of the financial year 2014, compared to Q1 2013. The strong gains highlight the 13th consecutive quarter of double-digit year-over-year increases in FFO and net operating income ("NOI"), a robust testament to the strength of the Mainstreet model.
"We could not be more thrilled about our performance this quarter," says Bob Dhillon, Chief Executive Officer and founder of Mainstreet. "We have said for a long time that our business is a high-horsepower growth engine, and our strong results once again make that clear. But this is no one-off. We're now into our fourth year of consistent gains, and given our underlying business model, we believe that there is ample reason to expect this trend to continue."
In Q1 2014, Mainstreet's revenue from continuing operations rose 17% to $21.5 million, up from $18.4 million in Q1 2013. Same asset rental revenues climbed 10% to $19.8 million, from $18 million in Q1 2013. NOI from continuing operations increased 18% to $14.4 million, while growing 10% to $13.2 million at same asset properties. Funds from continuing operations (excluding stock option cash settlement expense) were up 67% to $6.0 million, an increase over $3.6 million in Q1 2013. The same asset vacancy rate fell to 7.3% from 9.6% in Q1 2013.
In Q1 2014, we acquired 87 residential apartment units in the British Columbia and Alberta cities of Abbotsford, Calgary and Edmonton for total consideration of $9 million. During the quarter, we secured $7.9 million in 10-year, CMHC-insured mortgages on five stabilized properties in Saskatoon, at an interest rate of 3.6%.
Across our portfolio, we have experienced average annual property tax increases of 3% to 5%. Natural gas prices have risen substantially in 2014. Interest rates have surged by close to 100-basis points over the past six months, though signs of reversal have recently emerged.
Mainstreet believes key performance levers remain firmly in place to underpin future growth. On vacancy, rental concessions, property stabilization and acquisition capacity, Mainstreet continues to pursue a twin-track strategy of delivering both organic and inorganic growth.
Right Market, Strong Liquidity
We believe Western Canada, particularly Alberta, remains among the most promising regions in North America to acquire and manage multi-family residential properties. Growth in people and the economy is expected to push increases in rent, revenue and NOI. In 2013, Alberta experienced record in-migration, with its population growing at a faster rate even than Ontario, a much larger province. Alberta's real GDP grew by 3.3% in 2013, and is set to further accelerate in 2014, with 3.9% growth, according to RBC Economics. In 2014, the CMHC expects a 4% increase in Calgary two-bedroom average rental rates. CMHC also expects Edmonton two-bedroom average rent to rise by 3% in 2014, and forecasts a 2.4% increase in Saskatoon.
Furthermore, Mainstreet's strong liquidity position provides capacity for significant continued expansion -- as always, without diluting shareholder equity. As of the quarter end date, we owned 20 clear title properties and a development lot with market value of approximately $66 million, a source for substantial funds that can be raised through financing. Following our expected refinancing of $96 million in debt maturing in 2014, we expect substantial additional funds can also be raised. In addition, subsequent to the quarter end date, Mainstreet has been granted a new $85 million line of credit.
Organic Growth, Low Interest Rates
As of December 31, 2013, 14% of Mainstreet's existing portfolio remains in a stabilization process, with apartment buildings that experience high vacancy rates and bad debt alongside low rental rates. In a key market like Edmonton, 26% of the portfolio remains unstabilized. In this fixed cost business, every incremental boost to rental revenue directly increases Mainstreet's bottom line.
In addition, Mainstreet has approximately $96 million in debt maturing in 2014, with an average current interest rate of 4%. Relative to the current CMHC 10-year mortgage rate of approximately 3.5%, we expect to achieve a substantial savings in interest expenses through refinancing.
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 British Columbia 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 February 11, 2013 there were 10,466,081 common shares outstanding.
Certain statements contained in the press release 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.
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President and Chief Executive Officer