Mr. Bob Dhillon reports

MAINSTREET EQUITY CORP. RELEASES Q4 2019 RESULTS

Mainstreet Equity Corp.'s 2019 results mark the sixth consecutive quarter of year-over-year double-digit growth in all of the company's key metrics, solidifying a steady improvement in its operational performance that has continued to deliver non-dilutive value to shareholders.

Bob Dhillon, founder and chief executive officer of Mainstreet, said, "Our ability to achieve double-digit growth over the past 18 months is a clear signal that our long-term countercyclical strategy is working, and follows a long precedent at Mainstreet of delivering real value." He added, "As we enter 2020, our management team sees substantial opportunities to continue improving our operations and non-dilutive growth on an opportunistic basis."

Financial achievements of 2019

• Boosted same-asset revenue growth by 8 per cent and same-asset net operating income growth by 9 per cent while sharply increasing overall rental revenue (19 per cent), NOI (20 pe cent) and funds from operations (33 per cent), despite a high number of acquisition of unstabilized assets (18 per cent of total portfolio) that would typically lower operational performance;
• Increased in stock value by 33 per cent to $63.62 per share, up from $48 per share as of the year ended Sept. 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 the company's 100-per-cent organic, non-dilutive growth model. Total apartment units increased to 12,901 in fiscal year 2019, up 10 per cent from 11,776 in fiscal 2018 (rising to 13,034 units as of Dec. 5, 2019);
• Raised approximately $84-million in 10-year, long-term CMHC-(Canadian Mortgage and Housing Corp.)-insured mortgages at an average interest rate of 3.02 per cent to finance future growth. Recent finance rates were just 2.45 per cent, providing cheaper financing opportunities going forward;
• Improved operations by increasing operation margin to 63 per cent in 2019 from 62 per cent in 2018 and driving down vacancy rates, which fell from 10.1 per cent to 5.7 per cent in fiscal 2019 from 10.1 per cent in 2018, 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 the company's apartment units and quality of living for its tenants;
• Maintained sizable liquidity level of approximately $150-million in fiscal year 2019, providing plenty of room for future opportunistic acquisitions and non-dilutive organic growth.

The company believes these achievements are a direct result of Mainstreet's aggressive countercyclical growth strategy and value-added business model as well as a gradual economic improvement in its core markets. In anticipation of an economic downturn more than four years ago, the company's management team put in place a strategic plan that included aggressively acquiring underperforming properties, strengthening its 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.

Outlook

As the company enters 2020, management believes that its countercyclical growth strategy and value-added business model will continue to improve its financial performance and create non-dilutive value for shareholders. It has identified the following areas as a way to achieve future growth.

Runway on existing portfolio

1. Closing the NOI gap: In fiscal year 2019, 18 per cent 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, the company believes that its same-store revenue, vacancy rate, NOI and FFO will see further improvement.
2. Loss to lease: The company believes its Vancouver/Lower Mainland market, which makes up 21 per cent of its 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 per cent of its tenants in the region are below the market average. With an average annual turnover rate of about 25 per cent, the company expects its NOI will continue to improve while it reduces its loss-to-lease over time.
3. Lowing interest cost: Approximately $156-million of mortgage loans with an average interest rate of 3.9 per cent are maturing in 2020 and 2021. The current 10-year, CMHC-insured mortgage rate is about 2.5 per cent. The company expected that the interest cost will remain low and the refinancing of these maturing mortgages will result in substantial reduction in future expenses.
4. Pursuing the company's 100-per-cent-organic, non-dilutive growth model: With its strong potential liquidity position of approximately $150-million, through expected financing of clear titled properties after stabilization, and its proven ability to identify and acquire underperforming assets, particularly in during periods of recession, the company believes there will be significant opportunity to continue acquiring new assets at low cost that, it believes, will allow it to continue create new value.
5. Buying back the company's common shares: The company believes its shares continue to be traded below their NAV; it will continue to buy back its own common shares on an opportunistic basis under its normal course issuer bid (NCIB).

Continued improvement in the rental market

Management believes demand for rental properties will continue to increase due to a steady rise in population and a limited increase in the new supply of purpose-built rental properties. Over the last 10 years, the Canadian population has grown by nearly four million, yet the number of new purpose-built rental units has only increased by approximately 200,000, creating a huge gap between supply and demand in the rental market. This trend of rising populations is evident in Mainstreet's core markets. Alberta added 70,595 new residents in the year ended June, 2019, alone. In migration into Alberta was 12,899 in Q2 2019, up from 9,189 a year earlier (Statistics Canada). In addition, the population of foreign students has also increased substantially over the past 10 years, reaching a record high of 721,205 international students in 2018, according to government of Canada data.

Higher immigration levels and steady population growth are further supported by gradually improved labour markets in Western Canada. Alberta's unemployment rate was 6.7 per cent in October, 2019 -- a 0.5-per-cent decrease from a year earlier (Statistics Canada). Saskatchewan has remained largely constant at 5.1 per cent in October, 2019. British Columbia added 15,000 new jobs in the month of October alone, and remains among the lowest unemployment rates in Canada at 4.7 per cent. Management believes that the apparent improvement in labour market conditions will likely result in stronger interprovincial in migration.

Furthermore, the company believes gradual population growth will continue to absorb the continuing oversupply of condominium units, bringing better balance to the rental market. That oversupply was the result of the rapid construction of condominiums during the last period of high economic growth, which caused roughly 30 per cent of new units to be brought into the rental market, according to CMHC data.

That trend is now showing signs of subsiding. Edmonton's rental market vacancy rate is expected to fall to 3.9 per cent in 2019, down from 5.3 per cent in 2018, according to CMHC data as of October, 2019. Calgary's vacancy rate is expected to fall to 3.6 per cent, down from 3.9 per cent over the same period. Saskatoon is expected to fall from 8.3 per cent down to 7.3 per cent, while Regina is expected to increase slightly from 7.7 per cent up to 8.2 per cent. Vancouver is expected to remain among the lowest in the country at 1.1-per-cent vacancy.

Driving down costs

Amid ever-rising costs due to public policy, Mainstreet believes it has kept its operating costs at competitive levels, in part by implementing new technological systems and leveraging the company's management team. Its five-year, $3-million investment in a leading software technology from Yardi System Inc., which automates the company's management platform, is just one example of its dedication to future cost savings and increased efficiencies.

The company believes these efforts should be helped along by new policies under the Alberta government, whose proposed corporate tax cuts would put the province back among the most competitive rates in the country.

During 2019, the company has also successfully expanded its warehousing capacity through development of on-site warehouse spaces at its existing residual land in all cities. This has streamlined its supply chain and enabled it to increase factory-direct sources for materials from China, which will further reduce its cost and improve the cycle time for renovations.

While coming decisions regarding interest rates by the Bank of Canada remain uncertain, interest rates nonetheless remain at low levels. Canadian GDP (gross domestic product) growth remains below the BoC's target growth rate of 2 per cent, which many analysts believe will keep the bank from pursuing aggressive hikes in the near future.

Capturing the mid-market

In the company's opinion, Mainstreet's mid-market rental rate, with a price-point average between $900 and $1,000, is perfectly positioned to attract would-be customers. The company believes the majority of customers, including millennials and "generation Z" (which comprise roughly 45 per cent of the total population), and immigrants, students and foreign students will continue to favour mid-market prices as they defer major investments like new homes during times of economic uncertainty. The company believes it is uniquely positioned to capture the growing market within this lower bracket.

Management believes this trend among first-time buyers (who usually come out of the overall rental pool) are further supported by tighter borrowing requirements under the Office of the Superintendent of Financial Institutions, announced in 2017, which will make it more difficult for first-time homebuyers to secure financing. The company believes this trend as generally supportive of the rental market. The Bank of Canada estimates the new rules could disqualify as many as 10 per cent of new buyers every year.

Challenges

As the company enters fiscal year 2020, oil market volatility and an uncertain political climate remain its biggest obstacles. Prices for U.S. benchmark West Texas Intermediate (WTI) hovered around the $55 (U.S.) range for most of 2019, remaining well below prices five years ago. A lack of available pipeline capacity has weighed on Canadian oil prices in particular, and has widened the differential with WTI, despite efforts by the provincial government to raise prices via a cap on production. The result has been a continued hesitancy among investors, particularly in the United States, to invest in the Canadian energy sector.

Lower Canadian oil prices have also underscored deeper complications in the country's regulatory and legal regime, which have caused delays in large projects like oil pipelines and hydro transmission lines. While the company believes the federal government's June, 2019, approval of the Trans Mountain pipeline sent a positive signal, broader uncertainty in the company's regulatory regime could cause a further cooling in investment levels.

Meanwhile, continuing trade disputes between the U.S. and China could spill over into the Canadian economy, restricting exports and shrinking GDP growth. While a trade spat between Canada and China over pork exports softened around the end of 2019, tensions between the two countries seem to remain high.

Management believes negative macro-economic forces have likewise caused the continuing short positions in respect of the trading of Mainstreet common stock. The company believes this is partly responsible for its share price continuing to trade well below what it believes to be its true net asset value.

Lastly, rising operating costs also pose a challenge. The federal carbon tax will be enforced in Alberta beginning in 2020, which in turn raises costs for property owners. Additionally, new federal regulations under the Clean Fuel Standard targeting natural gas emissions are anticipated to come into force around 2023, likely raising home heating costs. Various municipalities, for their part, have continued to increase property taxes. The company's efforts to stabilize a record 18 per cent of unstabilized assets have likewise raised costs for human resources, materials and other operational expenses.

Mainstreet management will continue to monitor any changes in business and market conditions, and take necessary proactive actions to minimize risk and maximize value to shareholders.

We seek Safe Harbor.