CALGARY, Dec. 22 /CNW/ - Mainstreet Equity Corp. ("Mainstreet" or the
"Corporation") (TSX:MEQ) today released its 2005 annual report including
financial results for its year ended September 30, 2005. The Corporation
posted substantial increases in year-over-year revenues and rental income, and
significantly grew its portfolio of assets through acquisitions. As of
September 30, 2005, Mainstreet's portfolio of properties had an appraised
market value of more than $300 million as determined by independent real
estate appraisers with Accredited Appraiser Canadian Institute (AACI)
designation. This compares to a book value of $189 million.
2005 Highlights
The following highlights include activities and achievements in the 2005
fiscal year ending September 30, 2005, as well as subsequent activities as of
the day of this press release:
- Mainstreet's total portfolio grew by 30% to 3,550 units compared
to 2004 as a result of acquiring 817 apartment units in our four
focus markets - Vancouver/Lower Mainland (Surrey), Calgary,
Edmonton and Greater Toronto Area - at a total cost of $47 million
during 2005. After fiscal year-end, the Corporation acquired an
additional 255 units at a cost of $15 million.
- Mainsteet's asset base in Vancouver/Lower Mainland (Surrey) grew
by 226% (666 units) in 2005. After fiscal year-end, the
Corporation acquired an additional 150 units in the region. Tight
rental supply, high values on competing purchase property, and
favourable long-term demographics make this a desirable target
market for Mainstreet.
- Mainstreet's Calgary vacancy rate fell dramatically to 2.0% as of
December 15, 2005, compared to the average annual vacancy rates of
13% in 2004 and 6.4% in fiscal 2005. A high proportion of
apartment units have reached "stabilized" status, meaning they
have been value-enhanced through refinancing, renovations and
operational improvements, and then reintroduced to the market at
higher rental rates.
- The Corporation's overall vacancy rate fell to 4.2% on stabilized
properties (as of December 15, 2005), a reduction of approximately
seven points and three points compared to the average annual
vacancy rates of 11% in 2004 and 7% in 2005.
- Effective December 1, 2005, due to the stabilization of apartments
and market forces, Mainstreet has implemented rent increases in
its Alberta portfolio. This is expected to contribute positively
to Mainstreet's financial performance in 2006.
- $16 million of debt was consolidated under long-term financing at
an average fixed interest rate of 5%, compared to the original
average floating rate of 6%. Most of this debt is financed under
10-year terms.
Financial Performance
The acquisition of 817 residential apartment units in 2005 had a positive
impact on Mainstreet's rental revenues. Rental income increased 21% to
$23.8 million from $19.7 million in 2004.
However, the short-term cost of these acquisitions contributed to a
downward effect on funds from operations in 2005. Funds from operations
("FFO") is a widely accepted measure of a Canadian real estate company's
performance. It is not, however, a recognized measure under Canadian generally
accepted accounting principles ("GAAP"). The Corporation calculates FFO by
taking net income after discontinued operations and adding non-cash items
including future income taxes and amortization. The method used to determine
this amount may differ from that used by other real estate companies.
In 2005, FFO totaled $1.1 million ($0.11 per share) compared to
$2.2 million ($0.24 per share) in 2004. A number of factors contributed to the
downward effect on funds from operation:
- annual interest charges of $2.7 million incurred as a result of a
private placement of $33 million principal amount in convertible
debentures completed in 2004;
- higher vacancy rates and renovation costs associated with
"non-stabilized" properties acquired in 2005;
- increase in cost structure due to the economic boom and resulting
higher wages in Alberta;
- high construction costs due to a shortage of skilled and unskilled
labour, and rising material costs;
- rising utilities costs, especially natural gas;
- increased property taxes; and
- longer time required to stabilize Toronto assets due to: 1) the
Ontario Landlord and Tenant Act, which has more restrictions
compared to Alberta, and 2) soft rental market conditions in
Ontario, which slowed down the process of refilling a building;
those conditions have now begun to improve.
Outlook
The Corporation's financial performance is expected to strengthen in
12 to 24 months when the new acquisitions have been stabilized and begin to
generate revenues that will offset the added annual interest expenses. As the
Corporation moves into 2006, its three main objectives will be to:
- closely monitor the renovation progress on the current
non-stabilized properties in order to change their status to
stabilized and become active revenue-earning assets;
- use remaining proceeds of approximately $19 million from the 2004
private placement of convertible debentures to acquire
under-performing assets that are excellent candidates for value
enhancement and will support future growth; and
- and increase geographic diversification by growing the property
base in selected areas of the Corporation's four focus markets:
Vancouver/Lower Mainland (Surrey), Calgary, Edmonton and Greater
Toronto Area.
"Mainstreet has several competitive advantages that will help us achieve
our objectives and realize the long-term benefits of our acquisition program,"
says Bob Dhillon, President and CEO. "Most importantly, we are a mid-market
leader and have proven we know how to identify high-potential opportunities
and then realize significant value through our "Value Chain" operating model.
We have grown from an appraised market value of $17 million when we went
public in 1998 to more than $300 million as of September 30, 2005 - a compound
annual growth of more than 50% over seven years."
He adds, "Mainstreet is well capitalized and supported by advanced
information systems that will help the Corporation carry out its immediate and
longer-term growth plans. As well, the long-term demographics of our focus
markets are very promising in terms of rental demand."
About Mainstreet
Mainstreet is a Calgary-based, growth-oriented real estate corporation
focused on the acquisition, redevelopment, repositioning, 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 (Surrey), Calgary, Edmonton and Greater Toronto Area.
Established in 1997, Mainstreet has grown its portfolio from 272 units to
3,805 units as of the date of this press release, representing a 40% compound
annual growth rate. In addition, Mainstreet has enhanced the value of, and
subsequently sold, 329 units at a considerable profit.
Mainstreet's common shares are listed on the Toronto Stock Exchange under
the symbol "MEQ". There are currently 9,238,333 common shares outstanding.
Cautionary Statement Regarding Forward-Looking Statements
This news release contains forward-looking statements based on
assumptions, uncertainties and management's best estimates of future events.
When used herein, words such as "intended" and similar expressions are
intended to identify forward-looking statements. Forward-looking statements
are based on assumptions by and information available to the Corporation.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties. Actual results may differ materially from those currently
anticipated. The forward-looking statements contained herein are expressed
qualified by this cautionary statement.
The Toronto Stock Exchange does not accept responsibility for the
adequacy or accuracy of this release.
Members of Mainstreet's Board of Directors have reviewed this news
release prior to distribution.
