CALGARY, Feb. 12 /CNW/ - In the first quarter of 2010, Mainstreet Equity Corp. met the repercussions of Canada's struggling economy head-on. In addition to beginning fiscal 2010 with a commitment to evaluating and refining its strategy for growth, minimizing costs and solidifying its management team, the Corporation extended concessions designed to encourage renewal of existing leases in the face of market-driven vacancy rate increases. These one-time expenses will be discontinued as the economy rebounds; however, in Q1 2010, they had a measurable impact on many of Mainstreet's metrics:
Rental Revenue - Down 2% to $12.5 million (vs.
$12.7 million in Q1 2009)
Rental Revenue - Same Assets - Down 8% to $11.5 million (vs.
Properties $12.6 million in Q1 2009)
Net Operating Income (NOI)
From continuing operations - Up 4% to $7.7 million (vs.
$7.4 million in Q1 2009)
Same Assets Properties - Down 5% to $6.9 million (vs.
$7.3 million in Q1 2009)
FFO from continuing operations
Including financing cost - Up 1614% to $1.6 million (vs.
$95,000 in Q1 2009)
Excluding financing cost - Down 24% to $1.7 million (vs.
$2.2 million in Q1 2009)
Operating Margin - 61% (vs. 58% in Q1 2009)
Total Acquisition and Capital - $13.8 million (vs. $7.2 million
Expenditures in Q1 2009)
Stabilized Units - 94 properties (4,199 units) out
of 125 properties (6,027 units)
Acquisitions - 183 units, representing an
increase in portfolio of 3%
Floating Debt - $29 million (7.5% of
Mainstreet's total mortgage
Refinancing (subsequent to Q1 2010) - $15 million approved for
refinancing on six-month CMHC-
insured mortgages (expected
average interest rate
= 2.6% versus current
interest rate of 5.35%)
Normal and Substantial Course - 2,868 common shares purchased
Issuer Bid and cancelled at an average
price of $8.39/share - total
outstanding shares reduced from
10,355,827 to 10,352,959
Cash on balance sheet - $17 million ($1.64/share)
Dispositions (subsequent to Q1 2010) - The Corporation entered into a
conditional agreement to sell
three properties (95 units) for
approximately $13 million, which
represents a pre-tax profit of
approximately $7 million
Q1 IN REVIEW - Sustaining Momentum with a Focus On Strategy
During fiscal 2009, Mainstreet Equity Corp. demonstrated that the agile execution of a sound strategy is the surest way to succeed in any economy. Entering into 2010, the Corporation amplified its commitment to the following points of strategic focus:
1. ACQUISITION GROWTH (3% increase in Q1 2010)
With prices soft and interest rates low, conditions are ideal for Mainstreet to build its portfolio of mid-market rental apartments through strategic acquisitions. In Q1 2010, the Corporation acquired one new building (183 units) in Surrey, BC. In keeping with Mainstreet's determination to maximize operational efficiencies and minimize costs, this building is strategically located next door to an existing Mainstreet property.
2. DEBT REFINANCING
Debt consolidation has always been a mainstay of Mainstreet's fiscal and risk management strategies. By refinancing floating debt to low-interest, long-term CMHC-insured mortgages, the Corporation significantly reduces the costs of borrowing while mitigating the risks inherent in floating debt. For 2010, the Corporation's floating and maturing debt totals $64 million. Subsequent to Q1, Mainstreet refinanced $15 million from 5.35% to 2.6% short-term for annualized savings of $412,000. The remaining $49 million will be refinanced into long-term CMHC mortgages at interest rates significantly lower than the current rate of 6.9%.
3. TEAM BUILDING
To fortify its human resources foundation, Mainstreet is capitalizing on the flux within the real estate markets to handpick seasoned professionals with exactly the blend of industry know-how and strategic foresight. During Q1 2010, the Corporation brought on board several key senior management personnel to support Mainstreet's executive and help realize the Corporation's growth-focused strategy.
4. INCREASED SAME ASSETS OPERATING MARGIN to 60% in Q1 2010 from 58% in Q1 2009
Through a stringent focus on reducing variable costs, Mainstreet has seen same assets operating margin increases over the past four quarters. Specifically, Mainstreet has been making a concerted effort to control variable operating costs such as marketing, maintenance and repair expenses. In Q1 2010, same asset operating costs were down by 14% compared to the same quarter last year.
5. THE RIGHT TIME TO RENOVATE (before the high rental season)
In Q1 2010, the Corporation spent $2.4 million on property improvements. This expenditure was highly strategic: higher-than-normal vacancy rates precipitated by the weak economy have created an excellent opportunity for Mainstreet to focus on stabilizing the unrenovated units in its portfolio. Although this measure increased Mainstreet's overall vacancy rate in Q1 (as the balance of unstabilized units in Alberta and Saskatchewan were vacated in order to renovate), the Corporation sees long-term value in renovating and repositioning these units at higher rental rates before the peak rental season of late spring and summer - strategic short-term sacrifice for long term gain.
A clear indicator of Mainstreet's solid grounding and the soundness of its strategies is the resurgence of the Company's share price in recent months. On February 5th, 2010, Mainstreet Equity Corp. shares closed at $10.50 - a 33% increase in share value since the financial year end dated September 30th, 2009.
While the mid-market rental apartment space has fared better than virtually every other real estate category during the ongoing economic slump, a number of challenges continue to adversely impact Mainstreet's performance:
1. An ongoing battle with high 'churn rates' - Recessionary conditions
produce high supply in the rental housing markets, which in turn
accelerates tenant turnover rates.
2. More bad debts - As unemployment rates increase, so do the rates of
default on rental payments.
3. The costs of idle cash - In Q1 2010, the same asset mortgage interest
increased by $360,000 compared to Q1 2009 without a corresponding
increase in revenue through the acquisition of revenue-producing
properties to offset financing costs.
4. Concessions - In a proactive effort to counteract the market-driven
rise in vacancy rates, Mainstreet has extended rental concessions to
existing tenants to encourage lease renewals. These one-time costs
are having a negative impact on Mainstreet's revenues.
5. Vacancy rates - As economies slow, vacancy rates rise: this is a
point of historical fact. However, the Corporation's strategic
measures to increase occupancy are beginning to pay off. Even in what
is traditionally the slowest rental period, Mainstreet realized net
gain of 0.52% in January - an indication that the market may be
starting to come around.
Currently, Mainstreet's profitability is in occupancy: with CapX-intensive renovations nearly complete on the Corporation's existing properties, every incremental increase in rental revenue will flow directly to the bottom line. As such, increasing occupancy by building momentum as the high rent season approaches is presently Mainstreet's top priority.
The Corporation's other primary focus through 2010 will be on growth in core Western Canadian markets: Calgary, Edmonton, BC's Lower Mainland and especially Saskatoon - Mainstreet's standout performer once again this quarter. (While the number of Mainstreet's Saskatoon units increased by 34% from Q1 2009 to Q1 2010, rental revenue increased by 50%. Meanwhile, the vacancy rate dropped significantly from 23% to 12%, and the overall operating margin leapt dramatically from 45% to 72%.)
"With ample cash to grow and a market ripe for strategic acquisitions, I am confident that Mainstreet will once again fulfil its strategic goals and deliver another year of outstanding achievements for its shareholders," says Bob Dhillon, President & CEO of Mainstreet Equity Corp.
(1) This first quarter report is for the three-month period ended
December 31, 2009. Mainstreet's current fiscal year ends
September 30, 2010.
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 residential rental units including apartments and townhouses in Vancouver/Lower Mainland, Calgary, Edmonton, Saskatoon and Greater Toronto Area. Mainstreet's common shares are listed on the Toronto Stock Exchange under the symbol MEQ. As of December 31, 2009, there were 10,352,959 common shares outstanding.
The above disclosure may contain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the Corporation's control, including: the impact of general economic conditions in Canada, industry conditions, increased competition, the lack of available qualified personnel or management, equipment failures, stock market volatility, and fluctuations in rental prices, energy costs and foreign exchange or interest rates. The Corporation's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or, if any of them do so, what benefits the Corporation will derive from them.
SOURCE Mainstreet Equity Corporation
For further information: For further information: Bob Dhillon, President and CEO - (403) 215-6063; Additional information is available at www.mainst.biz and www.sedar.com