CALGARY, May 9, 2013 /CNW/ - Mainstreet Equity Corp. (TSX: MEQ) is pleased to report that the second quarter of the 2013 fiscal year marks the 10th consecutive reporting period with double-digit year-over-year growth in net operating income ("NOI") and funds from operations ("FFO"). Mainstreet continues to grow its home base in Western Canada, where high incomes and some of North America's fastest-growing cities have created one of the strongest residential markets on the continent. Mainstreet is showing improvements in vacancy rates, rental concession and continued its organic growth while making steady progress in its stabilization program. The persistent low interest rates continue providing substantial financial benefits.
"Our core business in Western Canada is showing exceptional performance, and Mainstreet is financially positioned to continue its expansion in North America's best residential markets," says Bob Dhillon, Chief Executive Officer and Founder. "We are reaping the rewards from our focus on British Columbia, Alberta and Saskatchewan, where record levels of in-migration are creating an ideal market for our unique offering of boutique rental properties. We have maintained our streak of ever-improving operating performance, with continuing gains in the numbers that matter, from net operating income to rental rates. With low interest rates buttressing our add-value business model, we have substantial financial flexibility to pursue growth in existing and new markets."
This press release should be read in conjunction with Mainstreet's management's discussion and analysis (MD&A) and unaudited condensed consolidated financial statements and accompanying notes for the quarters ended March 31, 2013 and 2012, which provide detailed analysis of the Corporation's financial results (www.mainst.biz).
RESULTS FROM CONTINUING OPERATIONS
Funds from operations in Q2 2013 rose 39% to $4.3 million (before US investment fund expense, loss on disposition and stock option cash settlement expense), up from $3.1 million in Q2 2012. Rental revenue increased 16% to $19 million, up from $16.4 million in the corresponding quarter, while net operating income climbed to $12.1 million, a 17% increase from $10.4 million in Q2 2012. The strong performance was driven by portfolio growth, decreasing rental incentives, improvements in vacancy rates and higher rental rates. Same-asset operating income increased 10% to $10.8 million, an improvement over $9.8 million in Q2 2012. Same-asset vacancy rate decreased to 7.4% in Q2 2013 from 8.4% in Q2 2012.
Mainstreet's total investment portfolio has grown to 8,172 units, including 396 units acquired subsequent to Q2 2013. That marks a 14% growth from 7,138 units on March 31, 2012. Mainstreet has maintained its growth using internally generated cash flow, creating value without any equity dilution.
Mainstreet has secured approval from CMHC in Q2 2013 to refinance $16.4 million of debt into 10-year, long-term CMHC-insured mortgage loans. Funding was completed in April 2013, freeing an additional $2.9 million in cash while cutting annualized interest costs by approximately $380,000. In addition, CMHC has granted Mainstreet approval to refinance approximately $43 million (27%) of mortgages maturing in 2013 and 2014. This refinancing will raise an additional $10 million, and achieve a savings in annualized interest expense of approximately $272,000, including the 10 million in additional mortgage loans.
Mainstreet continues to face above-market vacancy rates, below-market rental rates, substantial churn and bad renter debt, particularly during the stabilization process on newly acquired unstabilized properties. This is particularly true in Edmonton, the Corporation's fastest-growing city, where Mainstreet has grown the portfolio by 56% in the last 24 months, from 2,218 units to 3,471 units.
Never before has Western Canada seen such a strong influx of people, with in-migration to British Columbia, Alberta and Saskatchewan at record levels. With our concentration of boutique rental units in these important markets, we believe Mainstreet is uniquely positioned to capitalize on the opportunities arising from this growth and economic strength. We expect our vacancy rate, net operating income and funds from operations will continue to improve.
Cash flow from selling three of four Toronto properties has been deployed in the acquisition of properties with high value added potential in Edmonton. We are seeking additional units in both Western Canada and possibly the U.S., where we view the long hangover from the housing crash as a historic buying opportunity. Mainstreet continues to believe it will benefit from persistent low interest rates in capital markets. We plan to refinance $155 million in debt maturing in 2013 and 2014, with an estimated decrease in the average interest rate from 4.3% to 3% for 10-year, long-term, CMHC-insured mortgages. We expect total savings in annualized interest expense of approximately $1.9 million upon completion of the refinancing and extending the average maturity period of our mortgage portfolio to 8 years from 5 years. In additional, we expect to generate substantial additional funds, on top of approximately $100 million currently available for our future organic growth.
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 May 9, 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