CALGARY, May 11 /CNW/ - In the second quarter of 2009(1), Mainstreet
Equity Corp. transitioned from a period of high expenditures related to
property acquisitions and renovations to a position of stable cash flow with
funds to grow. Through continued refinancing under lower interest, long-term,
CMHC-insured mortgage loans (by which Mainstreet raised about $3.8 million
during Q2 2009), and after issuer bids motivated by management's belief that
Mainstreet's shares are substantially undervalued (including a substantial
issuer bid buy-back of 3.3 million common shares at $6.25 per common share and
an ongoing normal course issuer bid through which, year to date, the
Corporation has purchased 782,000 common shares at an average price of $6.36
per common share), Mainstreet's funds for growth as of March 31, 2009 totalled
$28 million ($16 million in cash, $10 million in transit, $2 million in
In addition to these activities, management is pleased to report overall
positive results in Q2:
Debt-to-market value ratio - 56%(1) (as of March 31, 2009)
Rental Revenues - Up 19% to $13.1 million (vs.
$11 million in Q2 2008)
Rental Revenue - Same Assets - Up 12% to $12.4 million (vs.
Properties $11 million in Q2 2008)
Net Operating Income (NOI) - Up 22% to $7.3 million (vs.
$6 million in Q2 2008)
NOI - Same Assets Properties - Up 16% to $6.9 million (vs.
$6 million in Q2 2008)
Funds from Operations (FFO) - Up 68% to $1.7 million(2) (vs.
$1 million in Q2 2008)
Increase in Portfolio - 5.4% (to 5,659 units versus
5,367 units in Q2 2008)
Acquisitions in Q2 2009 - One building in Edmonton - 13
units (average cost: $62,000 per
Stabilized Units - 93 properties (4,259 units) out of
121 properties (5,659 units)
Refinancing - 11% of remaining floating debt
($40 million out of $356 million)
Substantial Issuer Buyback - 3.3 million shares at $6.25/share
(closed January 23, 2009)
Normal Course Issuer Bid - 0.8 million shares at an average
price of $6.36/share (year to date
(1) Based on AACI appraisals
(2) Before a non-cash financing cost of $0.2 million
Q2 IN REVIEW - Well Positioned for Future Profitability and Growth
During the past three years, Mainstreet was focused on growth - that is,
on finding and acquiring underperforming mid-market properties below market
and replacement value, upgrading them to Mainstreet's branded standards and
reintroducing them to the market at higher rental rates.
Beyond the obvious capital expenditures that come with expansion, these
years of growth brought many costly challenges: high utility and natural gas
prices, rising G&A costs, escalating costs of construction supplies, and the
fallout from the labour crunch, including ever-increasing costs for qualified
tradespeople and protracted cycle times for renovations and stabilization.
Today, with most of its properties fully renovated, management believes
the high costs of construction (as well as the challenges that came with an
overheated market) are largely behind Mainstreet. Although management cannot
fully anticipate the magnitude of the current economic downturn, its duration
or its impact on vacancy and rental rates in Mainstreet's markets, the
Corporation's position is promising.
1. STABLE CASH FLOW
The operation of apartment buildings is a fixed-cost business. Once
Mainstreet has renovated its existing properties - a costly undertaking that
is now, for the most part, behind them - every incremental increase in revenue
is anticipated to flow straight to Mainstreet's bottom line.
Across the entire Mainstreet portfolio, the vacancy rate at the close of
Q2 was 16%. Based on current rental rates, every 1% drop in this vacancy rate
is expected to add $610,000 to the Corporation's bottom-line profits. And
management expects the vacancy rate to drop during the high rent season that
typically lasts from June until October.
2. REFINANCING TO LONG-TERM CMHC INTEREST RATES
Mainstreet continues its determined efforts to refinance all remaining
conventional debt into lower interest, long-term, CMHC-insured debt - a
strategy that allows the Corporation to significantly mitigate debt risk and
reduce the cost of borrowing while liberating cash for new capital
During Q2 2009, Mainstreet raised about $3.8 million of additional funds
by refinancing under CMHC-insured, long-term mortgage loans at an average
interest rate of 3.53%. The total cost of financing was $0.2 million (non-cash
item). Although this impacted income and funds from operations during the
quarter, management expects significant long-term benefits to Mainstreet's
future growth and profitability.
Through refinancing, the Corporation has reduced its floating debt
balance as of March 31, 2009, to about $40 million (11% of the total mortgage
loans). Subsequent to Q2 2009, Mainstreet obtained CMHC approval to refinance
approximately $18 million at an expected average interest rate of 3.4%. From
this refinancing, Mainstreet expects to raise approximately $10 million
(included in the 'funds for growth' total of $28 million).
3. LOWER OPERATING COSTS
Through Q2, Mainstreet persisted in its efforts to streamline operating
costs and reduce cycle times, primarily by renegotiating arrangements with all
suppliers. By Q4 2009, management expects to see tangible results from these
cost-cutting measures and from lower natural gas prices than have been seen in
a long time.
4. CASH AT A TIME WHEN CASH IS KING
Instability in the credit marketplace has dramatically decreased the
liquidity of the banking system, resulting in a credit crunch that places real
limitations on companies without cash in hand. With a liquid position of $28
million ($16 million in cash, $10 million in transit and $2 million in
holdbacks), Mainstreet is well positioned to move into a buying
mode...provided the opportunities and the economic conditions align with the
Corporation's strategy for growth and its emphasis on fiscal prudence.
The current economy has been full of surprises, and Mainstreet makes no
forecasts without due respect for its still-uncertain impact on the Western
Canadian mid-market apartment rental business. Management's key concerns
include the following factors:
1. Potential softness in the rental market: As the peak rental season
approaches, management acknowledges the possibility of a fundamental
shift in demand. A slowdown in Western Canada's labour market and the
postponement or collapse of major projects could spur a drop or even
a reversal in immigration and inter-provincial migration; and
negative GDP and higher unemployment have been known to precipitate
higher vacancy rates.
2. The debt crisis: Although Mainstreet ended Q2 with a strong cash
position, the current credit crunch and the fact that mortgages have
become far more difficult to obtain could adversely affect the
Corporation's vision for continued growth. As a consequence of
today's restricted credit, Mainstreet was unable to renew a
$50 million line of credit through National Bank Financial.
3. The costs of idle cash: Amid the uncertainties of the current
economy, Mainstreet is duly cautious about acquiring assets. Although
the continued refinancing of stabilized assets has reduced the
Corporation's debt risk and strengthened its cash position, idle
capital constitutes a drag on cash flow and funds from operations
until it is reinvested.
While management is concerned about the economic recession and
uncertainty about its duration and future impact, Mainstreet's foundation
Management believes affordable rental housing is among the safest
investments in recessionary times. CMHC is forecasting immigration to Canada
in 2009 will remain steady compared to the historical high levels in 2008, and
immigrants tend to gravitate toward affordable rentals rather than home
purchases. Further, the majority of Mainstreet's assets are in Western Canada,
which many expect to weather the recession better than the rest of the
Management therefore remains optimistic about Mainstreet's ability to
continue delivering value to shareholders. A strong cash position and robust
cash flow fortify Mainstreet's stance as a company poised to take advantage of
smart opportunities, investing the Corporation with the ability to accelerate
its consolidation of the mid-market apartment space and add value to assets
through its Value Chain business model when the opportunity is right.
(1) This second quarter report is for the three-month period ended
March 31, 2009. Mainstreet's current fiscal year ends September 30,
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 March 31, 2009, there were
10,401,003 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.
For further information:
For further information: Bob Dhillon, President and CEO - (403)
215-6063; Additional information is available at www.mainst.biz and