CALGARY, Feb. 14 /CNW/ - In the first quarter of 2011(1), Mainstreet Equity Corp.'s strategic measures to increase cash flow and solidify the foundation of its business had a strong positive impact on the Corporation's financial performance. Also during the quarter, Mainstreet made significant strides forward in its plans for accelerated growth in 2011.
Key Performance Metrics:
|Rental Revenue|||||Up 22% to $15.3 million (vs. $12.6 million in Q1 2010)|
|Rental Revenue - Same Assets Properties|||||Up 10% to $13.8 million (vs. $12.5 million in Q1 2010)|
|Net Operating Income (NOI)|
|From operations|||||Up 30% to $10.1 million (vs. $7.7 million in Q1 2010)|
|Same Assets Properties|||||Up 18% to $9.0 million (vs. $7.6 million in Q1 2010)|
|FFO from operations|
|Excluding financing cost|||||Up 99% to $3.5 million (vs. $1.8 million in Q1 2010)|
|Including financing cost)|||||Up 57% to $2.7 million (vs. $1.7 million in Q1 2010)|
|Operating Margin|||||66% (vs. 61% in Q1 2010)|
|Total Acquisition and Capital Expenditures|||||$50 million (vs. $16 million in Q1 2010)|
|Stabilized Units|||||123 properties (5,700 units) out of 141 properties (6,929 units)|
|Acquisitions|||||510 units, representing an increase in portfolio of 8% over Q4 2010|
||||807 units, representing an increase in portfolio of 13% over Q1 2010|
||||Office building (Calgary Head Office)|
|Refinancing (subsequent to Q1 2011)|||||$29 million|
|Normal Course Issuer Bid|||||1,134 common shares purchased and cancelled at an average price of$11.33/share - total outstanding shares reduced to 10,376,281|
|Cash on balance sheet|||||$2.8 million ($0.27/share)|
|Vacancy rate|||||11.2% (vs. 18.9% in Q1 2010)|
Q1 IN REVIEW | Performance Highlights
1 | Achieved record FFO and significantly increased NOI by reducing vacancy to 11.2% (vs. 18.8% in Q1 2010)
As a result of aggressive measures to reduce vacancy in Mainstreet's stabilized properties, funds from operations before financing cost nearly doubled (increasing 99% to $3.5 million from $1.8 million in Q1 2010). Net operating income (same assets) increased 18% to $9.0 million (vs. $7.6 million in Q1 2010).
Even with the addition of 510 unstabilized (and therefore vacant) units in Q1 2011, and even without adjusting for the fact that Q1 is traditionally the low point of the rental cycle, Mainstreet's vacancy rate this quarter (11.2%) was down from the previous quarter (Q4 2010 - 11.3%). Excluding the new acquired units, the average vacancy rate for Q1 2011 is 10.5%
Mainstreet's bottom line also benefited from ongoing efforts to reduce costs, as the Corporation's margins improved to 66% in Q1 2011 compared to 61% in Q1 2010.
2 | Continued to build the Corporation's internal resources and senior management team
With an eye toward future growth, Mainstreet focused during 2010 and Q1 2011 on building its team with top talent difficult to acquire during strong economic times. As a result, the Corporation is now well positioned to accelerate growth in pursuit of its vision: to become the leader in the Western Canadian mid-market, add-value space.
3 | Demonstrated a commitment to accretive growth in 2011 with an 8% portfolio increase in a single quarter
Given the present market conditions, soft real estate prices and low interest rates, Mainstreet has an excellent opportunity to expand its presence in its key Western Canadian markets: Calgary, Edmonton, Saskatoon and Vancouver/Lower Mainland.
During Q1 2011, the Corporation acquired 510 units in Edmonton and Surrey for $43 million - an average unit price of $85,000. The resulting 8% increase in Mainstreet's portfolio of properties was the same as the 8% increase achieved in all of fiscal year 2010.
In the 12 months ended December 31, 2010, Mainstreet acquired 807 units and grew its portfolio by 13% (to 6,929 units from 6,122 units as ofDecember 31, 2009).
To accommodate Mainstreet's busy corporate headquarters and growing team, the Corporation also purchased an office building in Calgary for$3.8 million during Q1 2011. Some of the office space will be leased to commercial tenants, generating additional rental revenue for the Corporation.
As Western Canada's economy continues to show signs of recovery and commodity prices are rebounding, management anticipates that in-migration will pick up momentum and rental markets will regain their footing. As vacancies come down and rents go up, the soft prices currently seen in the marketplace will almost certainly begin to rise. As such, Mainstreet is determined to work swiftly to capitalize on what could potentially be a narrow window for exceptional add-value acquisition opportunities.
Until economic conditions in Mainstreet's key markets show meaningful and sustained improvement, the Corporation is likely to face the same challenges that adversely impacted its financial results in fiscal year 2010. Namely:
Moving forward, Mainstreet will persist in its efforts to bring down vacancy rates. Beyond continued positive impact on NOI and FFO, management is optimistic this will allow the Corporation to start phasing out the rental concessions and incentives that have negatively impacted revenues during the past several quarters. Continued progress in renovating unstabilized properties and reintroducing them to the market will also bolster Mainstreet's NOI and FFO.
Management is confident that Mainstreet has the resources needed to achieve its ambitions for significant growth in 2011. The Corporation started fiscal year 2011 with a cash balance of $1.4 million, and during Q1, it raised about $23 million from financing of a clear title property, mostly under long-term (10-year) CMHC-insured mortgage loans at an interest rate of 3.85%. As of December 31, 2010, the Corporation held clear titles on 17 properties with an appraised value of $44 million - additional assets Mainstreet can finance to liberate capital for growth.
Subsequent to Q1, Mainstreet has obtained approvals from CMHC and various financial institutions to refinance an additional $22.6 million of floating and matured debt for $28.4 million, which will raise an additional $5.8 million for growth. The Corporation plans to submit a further $6.1 million in floating debt for refinancing in Q2 2011, anticipated to raise an additional $4 million for growth.
"All in all, management believes we have the resources to grow to the next level without diluting our existing capital structure. I look forward to an exceptional year of growth for our Corporation and value creation for our shareholders," said Bob Dhillon, President & CEO of Mainstreet Equity Corp.
(1) This first quarter report is for the three-month period endedDecember 31, 2010. Mainstreet's current fiscal year ends September 30, 2011.
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, 2010, there were 10,376,281 common shares outstanding.
Certain statements contained herein 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 future acquisitions, reduction of vacancy rate, future profitability, timing of refinancing of debt, increased cash flow, the Corporation's liquidity and financial capacity, the Corporation's funding sources to meet various obligations 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 (often, but not always, using such words or phrases as "expects" or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "estimates" or "intends", or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved) 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 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.
Management closely monitors factors that could cause actual actions, ev