CALGARY, July 26 /CNW/ - In the third quarter of 2010(1), Mainstreet Equity Corp. maintained a tight focus on its strategic goals for 2010:
- Bring down vacancy rates to maximize cash flow; - Minimize the costs and risks of floating debt (especially in anticipation of rising interest rates); - Extract capital to grow; - Solidify and restructure human resources for the next wave of significant growth and - Pursue strategic growth opportunities.
The results of Mainstreet's focus on these core objectives are evident in many key metrics and performance indicators during Q3 2010:
Rental Revenue - Up 3% to $13.1 million (vs. $12.8 million in Q3 2009) Net Operating - Continuing - Up 2% to $8.3 million (vs. $8.2 million Income (NOI) Operations in Q3 2009) NOI - Same Assets Properties - Down 5% to $7.6 million (vs. $7.9 million in Q3 2009) Funds from - Continuing - Up 3% to $2.7 million (vs. $2.6 million Operations Operations in Q3 2009) (FFO) before financing cost Operating Margin - 64% (vs. 64% in Q3 2009) Operating - Same Assets - 63% (vs. 64% in Q3 2009) Margin Properties Total Acquisition and - $27 million (vs. $7 million in Q3 2009) Capital Expenditures Acquisitions - 195 units in Calgary (average cost: $128,000 per unit), representing a portfolio increase of 3% Stabilized Units - 103 properties (4.688 units) out of 132 properties (6,366 units) Debt Refinancing completed - $56 million (88% of Mainstreet's total and committed prior to floating and maturing debt as at year-end September 30, 2009) Total debt consolidation - $393 million (98%) of $402 million as of June 30, 2010 Clear title properties - 16 properties (567 units) ($50.2 million) Cash on Balance Sheet - $6 million ($0.60/share) Noteworthy Trends: Comparative Performance - Q2 to Q3 2010 Q3 2010 Q2 2010 % change Average Vacancy Rate 15.0% 18.8% (20%) Rental Revenue per unit per month $704 $709 (1%) Operating Cost per unit per month (1) $260 $267 (3%) Net Operating Income per unit per month $447 $442 1% (1) Winter heating cost adjusted for comparison purposes
Q3 IN REVIEW
1. Reduced vacancy rate from 19.5% to 11.4% as of July 23, 2010
Through numerous strategic measures aimed at attracting and retaining tenants, Mainstreet has reduced its overall vacancy rate from 19.5% at the start of the year to 11.4% nine months later. The Corporation is aiming to hit at a single-digit vacancy rate before year-end.
The latest CMHC Rental Market Reports (Spring 2010) show vacancy rate increases across much of BC, most of Saskatchewan and all of Alberta; and Statistics Canada data from June 2010 shows that provincial in-migration in Western Canada is the lowest it's been in more than a decade. In light of these general market conditions, Mainstreet is clearly bucking the vacancy rate trend.
2. Locked another 10% of Mainstreet's total debt ($39 million out of $402 million) into long-term commitments to pre-empt interest rate hikes
Anticipating the eventual rise in interest rates, Mainstreet has been aggressive in its efforts to consolidate as much floating and maturing debt as possible into long-term, lower interest, CMHC-insured mortgages. As of June 30, 2010, 98% ($393 million) of the Corporation's total debt ($402 million) was consolidated into long-term mortgages, most of them fixed-rate and CMHC-insured.
From its refinancing efforts in Q1 through Q3 2010, Mainstreet has extracted $21 million for growth and other capital expenditures.
3. Pursued value-added growth in strategic Western Canadian mid-market locations
During Q3 2010, Mainstreet acquired 195 units in Calgary - a very tight market. For this well-located concrete mid-rise with great potential for significantly higher rental rates, Mainstreet spent $25 million - an average cost of just $128,000 per unit. This property aligns perfectly with the Mainstreet business model and its "value added" approach to maximizing top-line revenues.
As a comparison, in Q3 2010, Mainstreet sold a nearby building for $155,000 per unit. The newly acquired building is in a more desirable location and improved condition.
Despite several strong signs that the economic tide is beginning to turn, Mainstreet continues to contend with the following challenges:
1. Rental Concessions - As the rental markets in which Mainstreet operates remain highly competitive, the Corporation continues to extend select concessions as a means of retaining existing tenants and attracting new ones. These concessions directly impact Mainstreet's top-line revenues. 2. Bad Debts - Missed rental payments - a hallmark of recessionary times - continue to impact Mainstreet's financial performance. 3. Uncertainty in the Capital Markets - Continued volatility in the capital markets poses ongoing challenges for Mainstreet and its shareholders. 4. Economic Uncertainty - While Canada's economy has been showing signs of stabilization and modest growth, a climate of worldwide ongoing uncertainty continues to impact Mainstreet's business. 5. Sluggish In-migration - According to the latest figures from Statistics Canada (released June 28, 2010), Alberta's population increased only 0.35% in Q1 2010 - "the smallest first-quarter population increase in the province since 1996." Notwithstanding this modest growth, all four western provinces had growth rates stronger than the national average.
As several key factors come into alignment for Mainstreet - lower vacancy rates, higher revenues, an increasingly strong management team, the near-complete renovation of the Corporation's existing portfolio and the near-complete elimination of its floating debt - Mainstreet intends to accelerate the strategic acquisition of value-add properties in key Western Canadian locations.
The Corporation now holds clear title on 16 properties (out of 132) at a total purchase cost of approximately $50 million. Refinancing these properties to liberate capital for growth is an option at Mainstreet's avail.
As it enters the final quarter of its 2010 fiscal year, Mainstreet is striving toward increased cash flow and cash for growth with a constant focus on the right real estate segment in the right Western Canadian locations. Trends in the Corporation's key performance metrics are very encouraging; and management is confident Mainstreet's operations will continue to improve with anticipated vacancy rate reductions coupled with ongoing efforts to control operating costs.
(1) This third quarter report is for the three-month period ended June 30, 2010. 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 June 30, 2010, there were 10,379,849 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.