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 holdbacks). 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 unit) 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 2009) (1) Based on AACI appraisals (2) Before a non-cash financing cost of $0.2 millionQ2 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 expenditures. 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. CHALLENGES 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.OUTLOOK While management is concerned about the economic recession and uncertainty about its duration and future impact, Mainstreet's foundation appears strong. 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 country. 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, 2009.About Mainstreet 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.