Rental Revenue - Up 14% to $50.8 million (vs. $44.5 million in 2008) Rental Revenue - Same Assets - Up 8% to $47.3 million (vs. Properties $43.9 million in 2008) Net Operating Income (NOI) - Up 21% to $30.7 million (vs. $25.3 million in 2008) NOI - Same Assets Properties - Up 12% to $28.6 million (vs. $25.5 million in 2008) FFO from continuing operations - Up 68% to $5.0 million (vs. (excluding sale) $3.0 million in 2008) FFO from operations - Up 153% to $11.4 million (vs. (including sale) $4.5 million in 2008) FFO from stabilized properties - $4.7 million (excluding sale) Operating Margin - 60% (vs. 57% in 2008) Total Acquisition and Capital - $42.7 million (vs. Expenditures $38.3 million in 2008) Stabilized Units - 94 properties (4,199 units) out of 124 properties (5,844 units) Acquisitions - 413 units, representing an increase in portfolio of 6.4% Gain from Sales - $5.9 million ($0.58/share) Refinancing - $98 million refinanced to long-term CMHC-insured mortgages - average interest rate = 4.35% (from 4.85% in 2008) Floating Debt - $29 million (8% of Mainstreet's total mortgage loans) Normal and Substantial Course - 4,132,049 common shares purchased Issuer Bid and cancelled at an average price of $6.35/share - total outstanding shares reduced from 14,487,876 to 10,355,827 Total cash raised through - $65 million refinancing in 2009 Cash on balance sheet at year-end - $25 million ($2.47/share) Debt to Market Value ratio - 56% (Debt-$380 million; appraised value-$679 million)
SUBSEQUENT TO YEAR-END
- On December 4, 2009, Mainstreet closed on the purchase of 183 residential apartment units located next to another Mainstreet property in Surrey, BC. The total purchase price of $13.8 million ($75,500 per unit), of which $11.8 million was financed by a combination of first mortgage and vendor take-back mortgages at an average interest rate of 3.3% , the balance of $2 million was cash to close. - Mainstreet obtained an Alberta Treasury Branch line of credit amounting to $22 million. - On September 30, 2009, 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.
2009 in Review / SEIZING OPPORTUNITY IN RECESSIONARY TIMES
For many companies across the globe, the past 12 months brought significant financial challenges and heavy losses. For Mainstreet, they brought opportunity. And unequivocal success.
The Corporation did exactly what it should have done in a recession. As a result, 2009 was a year of significant achievements for Mainstreet Equity Corp.
During the financial year ended
- Took maximum advantage of low interest rates to consolidate floating debt into long-term, lower interest, CMHC-insured mortgages
In a year when mortgage rates hovered near historical lows, Mainstreet's fundamental strategy of refinancing its floating debt to long-term, lower interest, CMHC-insured mortgage loans became especially attractive. As a result of aggressive refinancing during fiscal 2009, the Corporation:
- Reduced its cost of debt from 5.17% in 2008 to 4.93% - Mitigated risk by consolidating floating debt into long-term CMHC- insured mortgages at an average interest rate of 4.35%. More than 92% of Mainstreet's total debt now resides in fixed-rate mortgages at an average interest rate of 4.89%. - Generated $65 million in cash. In addition to providing funds for working capital, ongoing property renovations, portfolio expansion and a significant common share buy-back, this helped add stability to Mainstreet's balance sheet, whose funds for growth as of September 30, 2009, totalled $25 million. - Repurchased undervalued shares while the capital markets floundered
Motivated by management's belief that Mainstreet shares are undervalued, the Company has been leveraging its strong cash position to buy back shares. Amid the volatility of the capital markets through 2009, Mainstreet's stock price dropped considerably, creating the ideal condition for repurchasing shares.
Through a substantial and normal course issuer bid, the Corporation purchased for cancellation 4,132,049 common shares - nearly 29% of the outstanding common shares in the public float - for an average price of
- Issued and outstanding shares: beginning of year = 14,487,876 - end of year = 10,355,827 - Opportunistically expanded the Mainstreet portfolio of properties
During the 12 months ended
- 133 units in Surrey (average price = $82,707) - 60 units in Abbotsford (average price = $90,000) - 207 units in Saskatoon (average price = $61,812) - 13 units in Edmonton (average price = $61,538)
Subsequent to year-end, Mainstreet acquired 183 units in Surrey, BC, for a purchase price of
In all of Mainstreet's Western Canadian locations, a significant drop in competition for the types of properties Mainstreet targets to grow its portfolio bodes well for continued growth in 2010.
With increased stabilization in the mortgage debt market and a marked decrease in demand on trades, Mainstreet foresees much better real estate acquisition opportunities in the coming year than in the three years previous - opportunities the Corporation will pursue with its usual caution and fiscal prudence.
- Increased Same Store NOI during recessionary times
Mainstreet adheres unfailingly to its proven business model: acquiring underperforming mid-market properties below market and replacement cost, upgrading them to Mainstreet's branded standards, and reintroducing them to the market at higher rental rates.
In 2009, Mainstreet met the market's higher vacancy rates with an assertive push toward renovation and stabilization. The Company spent
- Significantly increased FFO during recessionary times
Even in a year when vacancy rates averaged 18% and 24% of its portfolio was not at market rents, Mainstreet achieved a 68% increase in FFO from continuing operations with only a 6.4% increase in its property portfolio.
- Improved our margins from 57% to 60% by reducing costs
The Company's strong financial position coupled with a prolonged economic downturn created the perfect opportunity to renegotiate supplier contracts, restructure operations and intensify efforts to reduce G&A, maintenance and repair, marketing, and other variable costs.
As a direct result of ongoing efforts to manage and reduce costs, Mainstreet's net operating margin from continuing operations in 2009 was 60% compared to 57% in 2008.
- Took advantage of a weakened labour market to rebuild the Mainstreet team
The economic downturn and its impact on Canada's labour market opened up great opportunities for Mainstreet to rebuild its organizational structure and put in place the personnel necessary for the continued operation and growth of its business.
- Demonstrated through year-end AACI appraisals that Mainstreet stock is trading at a significant discount to NAV
New property appraisals across all of Mainstreet's markets put the Company's Net Asset Value at
Mainstreet truly demonstrated its NAV in the final quarter of fiscal 2009 by divesting one of its
- Stayed focused on the right asset class and the right geographic locations
With its heavy toll on virtually every other real estate category - from land development and commercial retail to the condominium and single-family housing markets - the past year's economic recession reaffirmed that Mainstreet is operating in exactly the right market segment: mid-market multi-family rental properties in strategic Western Canadian locations.
Mainstreet's top performers in 2009 were its properties in Saskatoon, which grew from 486 units in 2008 to 670 in 2009. Saskatoon rental revenue increased from
Moving forward, Mainstreet will continue to facilitate the consolidation of mid-market rental properties and enlarge our brand as the Western Canadian mid-market multifamily owner/operator.
Through 2007 and 2008, Mainstreet's greatest challenges included a persistent labour crunch (which protracted cycle times and spurred ever-escalating costs for qualified tradespeople), low-supply restrictions in the acquisition pipeline, and higher costs of borrowing cash.
Today, those challenges are largely behind Mainstreet. In their place have come the typical repercussions of an economic downturn on the apartment rental business:
- Softening in the rental market: Negative GDP and higher unemployment have precipitated higher vacancy rates, and the present economic recession was no exception. - Lower rent coupled with higher concessions: As a result of softening in the rental market, Mainstreet has been impelled to adjust its rental rents and install rental incentives in some key locations. - A more rapidly revolving door: Recessionary conditions tend to spur a higher 'churn rate' in mid-market apartment rentals; and during the past 12 months, Mainstreet experienced a higher tenant turnover rate than in past years. - More bad debts: With economic turmoil come increased unemployment and wage rollbacks; and with these come an increase in the number of tenants who default on rent payments - a challenge that negatively impacted Mainstreet's rental revenue in 2009. - Idle Cash: As of September 30, 2009, the Corporation had $25 million cash in hand, which incurs interest expensesa but generates no income. Management will endeavour to invest into revenue producing properties that generates operational income and offset expenses.
CMHC anticipates that in 2010, improvements in economic activity coupled with a decrease in housing supply will strengthen demand for rental accommodations and put upward pressure on rental rates.
Capital Market Challenges
Undervalued shares. The volatility and fragility of the capital markets through 2009 precipitated a decline in Mainstreet's share price. Valued at
Debt Market Challenges
Management remains concerned about restrictions placed on the mortgage debt market during the past year, and increased spreads may negatively impact the Corporation's strategy for growth. Fortunately, management believes the debt market is easing. Subsequent to the financial year ended
OUTLOOK & STRATEGY ------------------
Where other companies saw challenge, loss and devastation in the economic conditions that prevailed in 2009, Mainstreet saw opportunity. Structurally and strategically, the Company went through many positive transformations and built a solid foundation for the next market cycle. With cash in hand, excellent cash flow and the capacity to borrow, Mainstreet is well positioned for continued growth.
For the coming year, Mainstreet's business goals include:
- Seizing the current market's exceptional opportunities to acquire 'add value' mid-market rental apartment buildings in its existing geographic platforms - Taking advantage of low interest rates and mitigating risk by consolidating the balance of the Corporation's floating debt with long-term, lower interest CMHC-insured mortgages - Continuing to take advantage of recessionary conditions to build a stronger, more effective team - Building reoccurring cash flow by renovating and stabilizing Mainstreet's entire portfolio of properties - Maximizing margins - Continuing a normal course issuer bid as management feels Mainstreet shares are undervalued - Reducing vacancy rates in Mainstreet apartments. (With renovations nearly complete on Mainstreet's existing portfolio, every 1% drop in the overall vacancy rate is expected to add $634,436 annually to the Corporation's NOI).
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,
Certain statements contained in this news release with respect to the Corporation constitute "forward-looking statements" as such term is used in applicable Canadian securities laws. These statements relate to analysis and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. In particular, statements concerning growth potential, increasing marketing efforts and estimates related to future market value, revenues and profitability, timing of re-financing of debt, cost reductions, maximizing efficiencies, adding incremental value, condominium conversion, the Corporation's funding sources to meet various obligations, re-purchase of common shares and other factors and events described in this document should be viewed as forward-looking statements to the extent that they involve estimates thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which 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 marketing, stabilization programs and the re-purchase of common shares, other issues associated with the real estate industry including, but without limitation, fluctuations in vacancy rates, inoccupation of units during renovations, fluctuations in utility and energy costs, credit risks of tenants, fluctuations in interest rates, availability of capital, the effects of a recessionary economy and such other business risks as discussed herein and other publicly filed disclosure documents. 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 there may be other factors that cause actions events or results not to be anticipated, estimated or intended. There can be no assurance that such stat