At a time when the capital markets are skittish about Alberta’s energy sector, a local publicly traded real estate company is proving that the province is no wasteland for growth.
Year-to-date, Mainstreet Equity Corp. has seen its shares rise by more than 73 per cent making it, by far, the best-performing Canadian real estate stock in 2019. On Monday, the Calgary-based company released its fourth-quarter results and boasted having completed its “sixth consecutive quarter of year-over-year double-digit growth in all of our key metrics.”
Mainstreet’s business model is a counter-cyclical one that sees it become more aggressive in the acquisitions market during a recession. Since 2014, the company has spent nearly $500 million on buying properties in Alberta and Saskatchewan, according to its chief executive, Bob Dhillon. Mainstreet buys apartments, often in clusters in student housing areas or immigrant communities, during a downturn, renovates them and then is able to turn around and rent them out at a higher price point.
While it also owns apartments in B.C.’s Lower Mainland and Saskatoon, Sask., 50 per cent of Mainstreet’s apartments are located in Calgary and Edmonton. Dhillon said his company has benefitted from Alberta’s population growing 1.6 per cent between July 1, 2018 and June 30, 2019 and as a result, he’s been able to push Mainstreet’s vacancy rate in the province down to 7.2 per cent from 12.6 per cent.
“If somebody on Bay Street is saying Alberta is gone, they don’t understand math,” Dhillon said.
The Mainstreet CEO didn’t want to speak on behalf of investors, but he thinks of 2019 as the year where many of them finally woke up to his company. Over the past 19 years, Mainstreet has reported 16 per cent compound annual growth in revenue. Its stock price has seen 14 per cent compound annual growth but had remained range-bound between about $35 and $40 since 2014.
That all changed this year and Dhillon thinks that some investors took a page out of his book.
“People are beginning to realize that at least in the multi-family business, we’re at the bottom of the market and this guy is going to have a long runway,” he said.
According to Raymond James analyst Johann Rodrigues, the multi-family subset of Alberta’s real estate sector was pummelled between 2016 and 2018 and both property fundamentals and the real estate stocks with exposure in the province, along with the aforementioned migration and vacancies are finally bouncing off their bottoms.
Alberta’s economy may still not yet be in a healthy spot, but it’s stabilizing, Altacorp Capital analyst Chris Murray said. Having spent years gobbling up apartments on the value market and renovating them, Mainstreet is now poised to take advantage.
Perhaps most important is that Mainstreet has been able to make its acquisitions responsibly. Much of the real estate sector is tied to interest rates and Mainstreet has been able to derisk itself, Murray said, by tying up their mortgage debt in long-term CMHC-backed securities and loans.
Dhillon said that he’d continue to look to make acquisitions as long as they’re value based and that’s exactly where Murray sees the company heading in the future, even as Alberta continues to rebound.
“When you talk about further growth, absolutely,” Murray said. “I see no reason for that to slow down.”
Financial Post
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