CALGARY, March 6, 2012 /CNW/ - In its first quarter results for fiscal 2012, Mainstreet Equity Corp. (TSX: MEQ) today announced that, following the implementation of International Financial Reporting Standards ("IFRS") and new acquisitions in Western Canada, the Corporation's national portfolio of 7,797 units in mid-market family apartment buildings is valued at $956 million, with net asset value equal to $42 per share basic.
Bob Dhillon, CEO of Mainstreet Equity Corp., said: "We believe that these results, which reflect the true value of our holdings, again demonstrate the success of Mainstreet's value-add business model. The results show that we have organically created growth and value to our portfolio without any equity dilution. We are now actively pursuing plans to further enhance the shareholder value of our Corporation. I want to thank the Mainstreet team for helping us to achieve this new milestone which follows our signal success in being the only real estate company listed among the top ten gainers on the TSX in 2011."
In Q1 2012, Mainstreet adopted the new IFRS accounting rules which allows the Corporation to report its investment properties at fair market value, instead of book value, in its financial statements. The new figures reveal the reportable value Mainstreet has created for shareholders since inception. As a result of IFRS, Mainstreet reported a portfolio value of $956 million for its investment properties instead of a historical book value of $505 million. This increases the reportable net asset value to $437 million which equates to $42 per share basic and $39 per share fully diluted, and reduces the debt to fair market value ratio to 54% instead of
102% measured at historical cost basis.
Funds From Operations ("FFO") grew by 14% to $3.4 million, while Net Operating Income ("NOI") grew by 10% to $11.1 million. Across the board, there was a drop in Mainstreet vacancy rates to 8.7% in the quarter, from 11.2% in Q1 2011. The same-asset vacancy rate in the portfolio fell to 7.0% in Q1 2012 from 9.9% in Q1 2011. This welcome trend is continuing and, as of March 1, 2012, two months after quarter's end, the overall vacancy dropped further to 5%.These improved results in FFO, NOI and vacancy rates were achieved despite the effects of acquiring additional unstabilized properties.
Mainstreet acquired 435 additional unstabilized units in Q1 2012 for $42 million. These recent acquisitions created growth in the Corporation's portfolio by 6% in the last three months. It is important to note, Mainstreet continues its pattern of achieving this growth organically without any equity dilution.
In Q1, 2012, Mainstreet refinanced $5.9 million matured mortgages in long-term (five to ten-year), CMHC-insured loans at an average rate of 2.85%. Approximately $173 million of mortgage loans mature between 2012 and 2014. The Corporation is working to refinance those mortgages in long-term CMHC-insured mortgages in order to mitigate interest risk exposure across its portfolio. Mainstreet's most recent financing featured a 2.96% rate on a ten-year long-term, CHMC insured loan. This reflects the Corporation's ongoing commitment and effort to reduce interest costs, the largest expense item on the balance sheet.
Capital Improvement and Supply Chain Management
In Q1 2012, Mainstreet spent $3.1 million in capital improvements and is budgeted to spend close to $12 million in this fiscal year. Since inception the Corporation has invested over $100 million on capital improvements. This is part of the Corporation's long-term commitment to continue improving and upgrading its properties to increase value to renters and shareholders.
Many rental apartment buildings in Canada were built 30 to 40 years ago and the inevitable aging of those buildings increases renovation, operating, repairs and maintenance costs each year. In light of costs associated with this natural deterioration, Mainstreet is taking proactive measures to protect its bottom line by securing a pipeline of high-quality, low-cost materials and supplies direct from manufacturers in China. Mainstreet has saved over 80 percent on recent kitchen cabinet expenses from new international suppliers, compared to the cost of local alternatives. Mainstreet believes this development will prove to be a significant competitive advantage in years to come, and that the Corporation will continue to identify a wider variety of renovation items from similar low-cost, high-quality manufacturers.
Mainstreet's pursuit of distressed assets means the Corporation must contend with higher vacancy rates, rental concessions and stabilization cycle time, all of which are a short term drag on FFO and NOI. However, all three of these issues are being addressed and improved upon as our number of unstabilized properties continues to decrease.
Management believes that the Corporation's macro fundamentals are trending in the right direction. In-migration to the Corporation's key Western Canadian markets continues to be positive, according to CMHC data, while the broader economy in Western Canada is outperforming the rest of the country. These positive economic factors should continue to support lower vacancy rates and higher rents.
The Corporation has reported new acquisitions and strong NOI and FFO growth. The Corporation is continually focused on reducing concessions, cycle time for stabilization and vacancy rates, and all three are making incremental improvements. As these improvements occur, the gains achieved will flow directly to the bottom line.
Mainstreet plans to raise approximately $34 million through refinancing of the matured loans and financing its stabilized properties in 2012. The Corporation continues to utilize its financial and human capital to create undiluted organic growth through strategic acquisitions to its add-value supply chain.
At this time, the Corporation is also building a strategy on how it may capitalize on the tremendous potential which exists in the mid-market, add-value apartment space in key areas of the United States. Management firmly believes the Corporation cannot ignore the upside potential these markets offer.
Mainstreet is a Calgary-based, growth-oriented real estate corporation focused on the acquisition, redevelopment, repositioning, and asset and property management of mid-market apartment buildings. The Corporation currently owns and operates 7,797 residential rental units, including apartments and townhouses, in Vancouver/Lower Mainland, Calgary, Edmonton, Saskatoon and the Greater Toronto Area. Mainstreet's common shares are listed on the Toronto Stock Exchange under the symbol MEQ. As of December 31, 2011, there were 10,401,281 common shares outstanding. Mainstreet's stock was the only real estate company listed among the top ten gainers on the TSX in 2011.
Certain statements contained herein may 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 reducing concessions, cycle time for stabilization and vacancy rates, timing and amounts of refinancing of debt and raising additional capital, the Corporation's funding sources to meet various obligations, possible expansion into the United States, 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 are not statements of historical fact and should be viewed as forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other 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 and acquisition programs, other issues associated with the real estate industry including, but without limitation, fluctuations in vacancy rates, unoccupied units during renovations, 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. 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 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.