CALGARY, Dec. 17, 2012 /CNW/ - In its fourth quarter results and annual report, Mainstreet Equity Corp. (TSX: MEQ) is pleased to report today that the end of fiscal year 2012 marks the eighth consecutive reporting period with double-digit year-over-year growth in net operating income ("NOI") and funds from operations ("FFO"). This is a clear demonstration of the recurring revenue model the Corporation has achieved in the midst of sustained growth, without diluting any shareholder equity. Mainstreet reached another important milestone when the Corporation's properties achieved a market value of over a billion dollars at the end of fiscal 2012, up from $908-million in 2011.
Bob Dhillon, Chief Executive Officer and Founder, says, "These reports are a great way to end the year. Mainstreet has consistently delivered results and created shareholder value. We have established a firm foundation that is making us into a stable cash-flow machine." Mr. Dhillon adds, "We are only just getting started. We believe we continue to have plenty of run-way, with opportunity for substantial growth and improvement in our most important metrics. Like always, we can do it without diluting shareholder equity."
This press release should be read in conjunction with Mainstreet's management's discussion and analysis (MD&A) and audited financial statements and accompanying notes for the years ended September 30, 2012 and 2011, which provide detailed analysis of the Corporation's financial results (www.mainst.biz).
RESULTS FROM CONTINUING OPERATIONS
In 2012, gross revenue increased 17% to $66.8-million, from $56.9-million in 2011. Net operating income climbed to $44.9-million, a 20% increase from $37.3-million in 2011. The overall operating margin increased to 67% as compared to 66% in 2011. Funds from operations, before US investment fund expenses, loss on disposal and stock option cash settlement expense, hit $15.1-million, 35% better than $11.2-million in 2011, driven by lower vacancies, decreasing rental incentives and higher rental rates. Same asset revenues rose 4% to $54.8-million, up from $52.7-million. Same asset operating income increased by 8% to $37.3-million as compared to $34.7-million in 2011. Same asset operating margin saw a 2% gain to 68%.
The market value of Mainstreet properties at the end of the fiscal year was $1.051-billion (including $68-million assets held for sale), up from $908-million a year before. Mainstreet added 833 apartment units to its portfolio in Surrey, Calgary, Edmonton and Saskatoon in 2012. The Mainstreet portfolio continues to expand, with the acquisition of an additional 260 units in Edmonton and Saskatoon subsequent to year end. As of today, Mainstreet has 8,440 units with a market value of approximately $1.08-billion.
In 2012, Mainstreet refinanced $26.1-million of mature debt into long-term, 10-year CMHC-insured mortgages at an average interest rate of 3.14%. Additional funds of $16-million were raised and Mainstreet realized savings in annualized interest expense of $388,000. Mainstreet also raised $17-million through financing certain clear title properties after stabilization.
UPDATE ON MAINSTREET'S INITIATIVES
Mainstreet has made substantial headway in efforts to take advantage of lower-cost, overseas services, supplies and talent. Approximately 50% of Mainstreet renovation materials are now sourced direct from manufacturers in China. Temporary foreign workers now account for 5% of the Mainstreet labour force in Canada. Employing international workers has shielded Mainstreet from some of the burdens of a tight labour market, while at the same time boosting productivity and efficiency. For similar reasons, Mainstreet has turned to India to re-develop its online presence. The first phase of the project is expected to be completed in mid-2013.
Mainstreet has liquidity in place to add roughly 2,000 more units - an expansion of 25% over today - without diluting shareholder equity. On NOI, Mainstreet has three important levers to pull in the year ahead. The Corporation exited 2012 with NOI from continuing operations of $44.9-million. Management expects that NOI can be further improved through a continued decrease in vacancy rates, reductions in rental incentives, increases in rental rates after stabilization, and changes in rental market conditions. Management believes that, with continued efforts to maximize returns and favourable market conditions, we can achieve an optimum NOI for our existing portfolio in 2013. Finally, on the cost of financing, Mainstreet has $173-million in debt due in 2013 and 2014. By refinancing this at mortgage rates near 60-year lows, Mainstreet can substantially lower its debt servicing payments and raise additional liquidity.
Mainstreet has already demonstrated major progress against each of those challenges, with 2012 overall vacancy rates (including all newly-acquired, unstabilized properties in the year) in particular falling from 11.3% to 8.3%. With CMHC forecasting significant improvement in western Canada, Mainstreet's primary market, the Corporation expects more improvements in 2013. Mainstreet's financial results will be further improved as further newly-acquired apartment units are renovated to Mainstreet specifications and re-introduced into the market at full market rents.
Because Management believes it is prudent to keep dollars in the more active western economy, Mainstreet has disposed of 404 apartment units in its Ontario portfolio, at a sale price of $47-million, subsequent to fiscal year end. Mainstreet is in negotiation about disposing the remaining 260 apartment units. The Corporation intends to reallocate the net proceeds from the disposition for further expansion in western Canada, where the prospects remain particularly strong. The closing date of the disposition is on January 23, 2013.
The U.S. is another area of growing interest for Mainstreet. This is a market on the brink of recovery, and there are still deals to be had.
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 Vancouver/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 September 30, 2012 there were 10,465,281 common shares outstanding. Mainstreet's stock was among the top ten gainers on the TSX in 2011.
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
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