Mainstreet Equity Corp (MEQ-T)

EPS of $12.18 beat estimates of $2.4 and sales of $66.9M missed estimates of $69.27M. It raised its dividend by 45% to $0.04 per share, and net operating income rose 24% in the quarter. Rental revenue from operations rose 20%, and the vacancy rate fell to 3.4% from 4.3% last year. While the results were strong, and growth remains at high levels, there was an analyst downgrade due to its lofty valuations (24X forward earnings). Its valuation has mostly remained flat over the past couple of years, but the company has executed well on growth and profitability. Given its continued execution, we would be comfortable with an entry point around $195 to $200. 
Unlock Premium - Try 5i Free

Excellent company with strong prospects. Will continue to own. Founder led, with lots of skin in the game. Demand of housing expected to keep growing. Does not lose any sleep over company. Mid-market apartments also continue to grow. No rent control in Western Canada - helps increase profits. Lots of "blue sky" to keep growing. 

Core holding in portfolio. Very strong asset base. Sharp management with founder who has lots of skin in the game (~50%). Excellent quarter with higher revenue and cash flow. New M&A - bought ~600 apartment as sellers wanted to sell before capital gains tax . Expecting 20,000 apartments by the end of the year. One of the best compounding companies in Canada. 

Has pulled back to a fair valuation for a phenomenal compounder. It's not a REIT, but a real estate corporation. So, they retain their capital to do deals. (REITs don't retain capital, so are stuck when there's a downturn.) MEQ buys smaller mid-market apartments, competing with mom-and-pop operators, not REITs. MEQ is counter-cyclical, and pays strong returns on time.

What's great is the growth without having to raise equity. Corporation, not a REIT, so it can hold onto cashflow to reinvest. Whereas REITs have to pay it all out. Still upside. Generating superior income from its current cycle of increasing rents.

It is under-followed since it hasn't raised money in over 20 years. It buys and manages small and mid-size apartment buildings in Western Canada. Its number of apartments has grown substantially and continues to grow. It has a record high number of units rented as well as record high rents. The CEO is excellent and owns half the business.

Really likes it, though illiquid. Adept at growing portfolio base and NAV, despite not having to issue any equity, the holy grail of real estate. Really likes Canadian western apartment markets, especially where no rent control. Rents go higher, and so NAV goes higher.

Thinks highly of CEO. Great example of building a great business by investing in accretive acquisitions instead of paying out a distribution. Discount to NAV. Migration into Alberta is a great story. No dividend.