Mainstreet's 2019 results mark the sixth consecutive quarter of year-over-year double-digit growth in all of our key metrics, solidifying a steady improvement in our operational performance that has continued to deliver non-dilutive value to our shareholders.
FINANCIAL ACHIEVEMENTS OF 2019:
- Boosted same-asset revenue growth by 8% and same -store NOI growth by 9% while sharply increasing overall rental revenue (19%), NOI (20%) and FFO (33%), despite a high number of acquisition of unstabilized assets (18%of total portfolio) that would typically lower operational performance.
- Increased stock value by 33% to $63.62 per share, up from $48 per share as of the year ended September 30, 2018. Mainstreet stock increased to a record high of nearly $71 per share as of the end of November 2019.
- Acquired $129 million in new assets in fiscal 2019 ($114,000 per door), complementing our 100% organic, non-dilutive growth model. Total apartment units increased to 12,901 in the fiscal year 2019, up 10% from 11,776 in fiscal 2018 (rising to 13,034 units as of December 5, 2019)
- Raised approximately $84 million in 10-year, long-term CMHC-insured mortgages at an average interest rate of 3.02% to fund future growth. Recent finance rates were just 2.45%, providing cheaper financing opportunities going forward
- Improved operations by increasing operation margin to 63% from 62% and driving down vacancy rates, which fell from 10.1% in 2018 to just 5.7% in fiscal 2019, despite an aggressive level of acquisitions of underperforming assets over the past four years
- Reduced cycle times in stabilization and renovation, in turn improving the appeal of our apartment units and quality of living for our tenants
- Maintained sizeable liquidity level of approximately $150 million in the fiscal year 2019, providing plenty of room for future opportunistic acquisitions and non-dilutive organic growth
We believe these achievements are a direct result of Mainstreet's aggressive counter-cyclical growth strategy and value-added business model as well as a gradual economic improvement in our core markets. In anticipation of an economic downturn more than four years ago, our management team put in place a strategic plan that included aggressively acquiring underperforming properties, strengthening our internal resources to improve the cycle time of stabilization, and capitalizing on low-cost, long-term CMHC insured debt financing, which both reduces our interest costs (Mainstreet's single-largest expense) and provides capital to fund future non-dilutive organic growth.
As we enter 2020, management believes that our counter-cyclical growth strategy and value-added business model will continue to improve our financial performance and create non-dilutive value for shareholders. We have identified the following areas as a way to achieve future growth:
Runway on Existing Portfolio
- Closing the NOI gap: In the fiscal year 2019, 18% of the Mainstreet apartment portfolio was going through the stabilization process due to a high level of recent acquisitions of unstabilized assets. Once they are stabilized, we believe that our same-asset revenue, vacancy rate, NOI and FFO will see further improvement.
- Loss to Lease: We believe our Vancouver/Lower Mainland market, which makes up 21% of our portfolio (2,751 units), offers a significant opportunity for future same-store NOI growth. This is partly due to a continued increase in market rates, combined with rules under the provincial Tenancy Act that has kept some annual rent rate increases substantially below the rest of the market, resulting in loss-to-lease of approximately $249 per unit per month. Currently, over 95% of our tenants in the region are below the market average. With an average annual turnover rate of about 25%, we expect our NOI will continue to improve while we reduce our loss-to-lease over time.
- Lowering interest cost: Approximately $156 million of mortgage loans with an average interest rate of 3.9% will be maturing in 2020 and 2021. The current 10-year, CMHC-insured mortgage rate is about 2.5%. We expected that the interest cost will remain low and the refinancing of these maturing mortgages will result in a substantial reduction in future expenses.
- Pursuing our 100% organic, non-dilutive growth model: With our strong potential liquidity position of approximately $150 million, through expected financing of clear titled properties after stabilization, and our proven ability to identify and acquire underperforming assets, particularly during periods of recession, we believe there will be significant opportunity to continue acquiring new assets at low cost that, we believe, will allow us to continue to create new value.
- Buying back our common shares: We believe MEQ shares continue to be traded below their NAV. We will continue to buy back common shares on an opportunistic basis under our normal course issuer bid (NCIB).
Mainstreet Equity Comparison 2000 vs 2019
20 Years of Annual Compounded Double-Digit Growth