May 10, 2022 / By: Mainstreet Equity Corp.


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CALGARY AB, May 10, 2022 -  In Q2 2022, Mainstreet achieved its second consecutive quarter of double-digit, year-over-year growth across its three most important operating metrics, with rental revenues and net operating income (“NOI”) increasing 14%, and funds from operations (“FFO”) growing 12%.

Bob Dhillon, Founder, President & CEO of Mainstreet, said, “Our latest results speak to the success of our countercyclical growth strategy, where we have continued to generate shareholder returns despite ongoing market volatility.” He added, “As we enter this new inflationary period, we see more opportunities to add value. In particular, our core strategy of acquiring properties at well below replacement costs continues to form the foundation of our business model, and will serve us well in a higher interest rate environment.”

We attribute these positive results in large part to the success of our long-term, value-add growth strategy, which we executed by accelerating acquisitions and improving stabilization cycle times during the COVID-19 pandemic. We also view these results as a result of improving market fundamentals, including the return of immigrants and foreign students to Canada, higher inter-provincial migration levels, and a sharp economic rebound in some of our core markets due to soaring oil prices. Furthermore, Mainstreet sees a significant opportunity to build on this momentum as we enter what has typically been our high rental seasons in Q3 and Q4. Current economic circumstances provide fertile ground for Mainstreet to continue pursuing its countercyclical growth strategy, where we have historically taken advantage of market volatility by expanding and diversifying our portfolio on an opportunistic basis. Our current liquidity position of $240 million offers ample firepower to acquire new assets at competitive costs.

Meanwhile, we believe that ongoing inflationary pressures will make it increasingly difficult for many low and middle-income Canadians to own a home. In that context, Mainstreet will continue to fulfill our role as a crucial provider of quality affordable housing, offering inner-city living at modest prices. To maximize our position in the market, Mainstreet intends to aggressively reposition units during the second half of fiscal 2022 to reduce our sizable NOI gap, continuing our 22-year legacy of driving shareholder value.


Despite a promising operating environment for Mainstreet, inflation and subsequent Bank of Canada interest rate hikes continue to create economic uncertainty. Inflation raises the cost of everything from labour to materials and, chiefly, increases Mainstreet’s cost of debt (our largest expense alongside acquisitions). The bank’s overnight rate has increased 100 basis points since our last Message to Shareholders, with more hikes still anticipated in the future, Mainstreet has mitigated this challenge to the extent possible by locking in the majority of its debt for long terms at lower rates. Please see “Outlook” below.

At the same time, global supply-chain constraints have also significantly increased the cost of goods and services. Costs for materials are rising, which increases Mainstreet’s costs in completing renovations and maintenance. Canada’s labour market also remains tight, with job vacancies reaching a near-record of 915,500 positions in late 2021 (Statistics Canada). This has raised Mainstreet’s labour costs and made hiring more challenging.

Major fixed expenses, such as property taxes, insurance, and utilities have increased in line with government policy. Carbon taxes, which place the financial burden on property owners, are scheduled to increase on an annual basis.


Even as the current economic climate creates some operational uncertainties, Mainstreet sees substantial opportunity in fiscal 2022 and 2023 to further diversify and expand its portfolio and acquire assets at competitive prices. In 2021, Mainstreet diversified into the Winnipeg, Vancouver Lower Mainland and Interior British Columbia markets. In the years since the beginning of the pandemic in early 2020, we have acquired $340 million in new assets. We expect that higher interest rates will reduce the number of able buyers in the market, in turn offering Mainstreet additional opportunities to pursue its 100% organic, non-dilutive growth model by purchasing undervalued properties.

In upcoming quarters, we anticipate that interest rates are likely to rise quickly as the Bank of Canada has signaled additional hikes in the remainder of the current fiscal year. To guard against these increases, our management team has ensured that the vast majority of Mainstreet debt is set at long-term fixed rates. Currently, 99% of our total mortgage debt is fixed at an average CMHC-insured interest rate of 2.51%, with an average maturing period of 7.1 years (see chart).

Management believes that sharp interest rate increases may further cause market price corrections, which would provide unique opportunities for Mainstreet to purchase more apartment buildings at adjusted risk. Furthermore, management believes that inflationary periods tend to be transitory in nature. Should interest rates once again fall sometime in the coming years, Mainstreet will benefit not only from more competitive acquisition costs, but also lower interest expenses (resulting in higher FFO) on refinancing after stabilization.

Current market conditions also create opportunities to extract additional value out of its existing assets. Mainstreet’s vacancy rates were 8.3% in Q2 2022 and are currently 7.4%, largely due to our large volume of unstabilized acquisitions in the last 18 months. Looking ahead, we see major opportunity to reposition units in order to lower that vacancy rate and reduce our NOI gap. In Q2 2022, 2,086 units out of a total 15,609 (13% of our portfolio) remain unstabilized, creating favourable conditions to boost operating income after stabilization.

Meanwhile, Mainstreet’s strong Western Canadian asset base, reaching from British Columbia to Manitoba, will continue to underpin our future growth. We expect that our Alberta and Saskatchewan assets will continue to benefit from high commodity prices. Oil benchmarks recently surpassed US$100 per barrel for the first time since pre-2015, partly due to a supply shock caused by the Russia-Ukraine conflict. Oil revenues in Alberta have surged to the point that the province is now back in budget surplus. Similarly, tech firms in the province attracted a record $561 million in venture capital funding in 2021, according to the Canadian Venture Capital & Private Equity Association (CVCA), suggesting Alberta is gradually diversifying its economy. In-migration into the province of Alberta reached 12,940 in Q4 2021, among its highest level in recent years (Alberta Economic Dashboard). We believe these trends will continue to create favorable operating conditions for Mainstreet in the second half of 2022.

We expect our Vancouver/Lower Mainland market will continue to drive corporate performance, as vacancies remain among the lowest in the country while rental rates remain near the highest. British Columbia has become central to Mainstreet’s portfolio, accounting for 33% of our IFRS value. With an average monthly mark-to-market gap of $445 per suite per month, 96% of our customers in the region are below the average market rent. That translates into approximately $16 million in NOI growth potential after closing the mark-to-market gap, according to Mainstreet’s internal estimates.

As border restrictions are eventually fully lifted, we believe that immigration levels will increase and more foreign students will enter Canada, two demographics that form a substantial portion of Mainstreet’s client base. The Canadian government’s goal to attract 1.2 million immigrants over three years should be broadly supportive of that trend. We expect that an increase in foreign students will be particularly supportive of our Edmonton market, where Mainstreet has situated itself as a central provider of student housing.

Lastly, a chronic housing shortage will continue to make owning a home unaffordable for average Canadians. This reinforces Mainstreet’s belief that inner-city, workforce affordable rental housing will remain an essential and safe asset class in Canada. In 2019, 44.5% of the working Canadian population earned an income of $49,999 or less, according to Statista Research Department. Mainstreet’s rental rate, with a price-point averaging between $900 and $1,000, is perfectly positioned to attract those seeking affordable and quality homes in today’s market.

Expanding our portfolio at well below replacement cost Inflation,                                                                                                                                    as with all aspects of the economy, will drive up the cost of building new rental properties. We believe this only deepens Mainstreet’s leading position in the rental market, given that we have built our portfolio through the acquisition of existing properties at prices that are well below the replacement cost of such properties (or, the cost of developing new rental properties). That market dynamic is central to the valueadded proposition Mainstreet offers, supported by strong market fundamentals like rising levels of immigration and our ongoing stabilization process. Further, higher costs to build rental properties is supportive of broader rental market dynamics, as it restricts new supply.

Fortifying Mainstreet in an inflationary world                                                                                                                                                                      Our management team has worked hard to safeguard Mainstreet from rising interest rates by locking in the majority of our debt at low fixed rate long term mortgages (see Challenges section). While we anticipate that interest rate hikes will plateau in the medium term, we also believe that we will benefit even if inflationary trends persist, given that we have taken full advantage of the last few years of low interest rates, allowing us to expand our portfolio at highly competitive costs.

A corporate citizen for all                                                                                                                                                                                                        Mainstreet, as a provider of affordable housing for middle-income Canadians, is deeply committed to maintaining the highest standards of social responsibility. Amid the ongoing Ukraine crisis, for example, that has meant taking in refugees displaced by conflict. During the pandemic, that commitment meant waiving rental payments for struggling tenants; delaying rent increases; halting evictions; and allocating additional financial resources toward safety provisions to support our customers. We believe the social benefits of such actions far outweigh any short-term financial losses.

Mainstreet Equality: Our dedication to inclusiveness                                                                                                                                                      Ever since Mainstreet listed on the TSX in 2000, diversity has been a key pillar in who we are. Our belief in the positive benefits of minority inclusion has persisted for decades, providing Mainstreet with a highly dynamic and unified workforce. 


  1. Pursuing our 100% organic, non-dilutive growth model: Using our strong potential liquidity position, estimated at $240 million for fiscal 2022 (including $25 million cash-on-hand, a $130-million line of credit and potential financing of clear title assets), we believe there is significant opportunity to continue acquiring underperforming assets at attractive valuations.
  2.  Boosting NOI: As of Q2 2022, 13% of the Mainstreet portfolio was going through the stabilization process. Once stabilized, we remain confident same-asset revenue, vacancy rate, NOI and FFO will be meaningfully improved. We are cautiously optimistic that we can boost cash flow in coming quarters. In the B.C. market alone, we estimate that the potential upside for NOI growth is approximately $16 million, which mainly represents leveraging our mark-tomarket gaps.
  3. Buying back shares at a discount: We believe MEQ shares continue to trade below their true NAV, and that ongoing macroeconomic volatility could intensify that trend. We will therefore continue to buy back our own common shares on an opportunistic basis under our normal course issuer bid.

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, increase or reduction of vacancy rates, increase or decrease of rental rates and rental revenue, future income and profitability, timing of refinancing of debt and completion, timing and costs of renovations, increased or decreased funds from operations and cash flow, the Corporation's liquidity and financial capacity, improved rental conditions, future environmental impact the Corporation's goals and the steps it will take to achieve them the Corporation's anticipated funding sources to meet various operating and capital obligations 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 are not guarantees of future events or performance and by their nature involve known and unknown risks, uncertainties and other factors, including those risks described in this Annual Information Form under the heading "Risk 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 availability but without limitation of labour and costs of renovations, fluctuations in vacancy rates, unoccupied units during renovations, rent control, fluctuations in utility and energy costs, credit risks of tenants, fluctuations in interest rates and availability of capital, and other such business risks as discussed herein. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking statements include, among others, the rental environment compared to several years ago, relatively stable interest costs, access to equity and debt capital markets to fund (at acceptable costs) and the availability of purchase opportunities for growth in Canada. 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 forward-looking 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 or as otherwise described therein.

Certain information set out herein may be considered as "financial outlook" within the meaning of applicable securities laws. The purpose of this financial outlook is to provide readers with disclosure regarding the Corporations reasonable expectations as to the anticipated results of its proposed business activities for the periods indicated. Readers are cautioned that the financial outlook may not be appropriate for other purposes.

SOURCE Mainstreet Equity Corporation