CALGARY, Dec. 13 /CNW/ - Mainstreet Equity Corp. ("Mainstreet" or the "Corporation") (TSX:MEQ) today released its 2007 annual report to shareholders and financial results for its fiscal year ended September 30, 2007. Mainstreet posted significant increases in net operating income, funds from operations and net asset value in 2007.
2007 HIGHLIGHTS
Portfolio grows to 5,250 units. Mainstreet grew its portfolio by 22% in 2007, adding 135 units in Edmonton and 82 units in the Greater Toronto Area - two of the Corporation's existing markets. Mainstreet also established positions in two attractive markets: Saskatoon, Saskatchewan (acquired 454 units) and Abbotsford, British Columbia (acquired 292 units, a combination of apartments and condominiums). Saskatoon's thriving economy also features low vacancy rates and an inventory of distressed mid-market properties that align with Mainstreet's acquisition strategy.
Portfolio value grows. The market value of Mainstreet's total portfolio as of Setpember 30, 2007 was appraised at $ 710 million(1). This substantial value has been created with minimal equity dilution, having financed acquisitions with internally generated cash flow.
Rental revenues increase. Mainstreet's rental revenues rose by 31% to $40.4 million in 2007 from $30.9 million in 2006. This resulted mainly from growth in Mainstreet's property portfolio and the increase in rental rates.
"Same assets" rental revenue rose. This increased by 17% to $33.3 million in 2007 compared to $28.4 million in 2006.
Net operating income up. NOI from continuing operations rose by 35% to $24.7 million compared to $18.3 million in 2006. This was the case for all operating regions.
"Same assets" net operating income also up. NOI increased by 26% to $21.5 million in 2007 compared to $17.0 million in 2006.
Funds from operations increase. In 2007, FFO from continuing operations increased by 297% to $5.0 million ($0.46 per basic share) from $1.3 million ($0.14 per basic share) in 2006. Total FFO was $5.0 million ($0.46 per basic share), a 174% increase from $1.8 million ($0.20 per basic share) in 2006. FFO from stabilized properties for 2007 was $7.3 million ($0.68 per basic share).
Stabilization efforts continue. In 2007, Mainstreet stabilized 12 properties (302 units) in Edmonton. As of fiscal year-end 2007, 68 properties (2,939 units) out of a total 115 properties (5,250 units) were stabilized. At fiscal year-end 2007, 44% of the Corporation's portfolio was undergoing stabilization, reflecting substantial value creation activity.
Generated funds through refinancing. Mainstreet converted and refinanced $20 million of short-term and matured mortgages on stabilized properties to 10-year-term mortgages insured by Canada Mortgage and housing Corporation (CMHC). The average interest rate was reduced from 7.57% to 4.89%, which will result in annual interest savings of $546,000 over the next 10 years. This also generated additional funds of $12 million, which will be used to support ongoing growth and capital improvements.
Convertible debenture completed and redeemed. On October 9, 2007, the Corporation gave notice of its intention to redeem all outstanding debentures as of November 6, 2007. Prior to this day, all debentures were converted to common shares with the exception of $1,000 principal amount, which was redeemed on November 6, 2007. This results in savings of interest expense of $2.5 million per year.
CHALLENGES
The Corporation experienced a number of significant challenges in 2007 that it has taken steps to address, chiefly:
1. Labour shortage. The continued severe labour shortage, especially in Alberta, is Mainstreet's number one challenge. This has substantially slowed down the Corporation's stabilization process, with the greatest impact felt in Edmonton where the process has been delayed by about six months. Management made a strategic decision to grow this portfolio aggressively in a short period of time, which created a large proportion of non-stabilized properties. This also caused high turnover in tenants due to reduced customer services, as well as high vacancy rates, operational inefficiency and high labour costs. To address this problem with a longer-term solution, in June 2007 Mainstreet initiated the process to bring in foreign workers who will work on Mainstreet renovation projects and provide maintenance and cleaning services. The Corporation is still waiting for final approval from the federal government regarding this application.
2. Rising natural gas costs. Heating costs continue to increase, which increased operating costs. Mainstreet has taken steps to mitigate the impact of natural gas prices by locking in favorable long-term utility contracts for the next five years.
OUTLOOK
Mainstreet's vision going forward is to leverage cash flow from its Western Canada portfolio, mitigate long-term risks, and continue to generate funds to support aggressive growth. To achieve its growth plan, the Corporation will focus on three key activities in 2008:
1. Growth. With Western Canadian markets achieving a more balanced
condition after a period of unprecedented price increases, especially
in Alberta, now is the time to capture growth opportunities.
Mainstreet will continue to pursue accretive acquisitions in Western
Canada, especially in Saskatoon, Vancouver/Lower Mainland and
Edmonton. In these markets, where the Corporation feels there is less
competition for mid-market properties that require repositioning, it
have been highly successful in acquiring properties that fit with our
value-add strategy.
2. Cash flow. The stabilization process will continue to be a priority.
The vast majority of Mainstreet's non-stabilized portfolio as of
fiscal year-end 2007 was in Edmonton, where the provincial
residential tenancy act provides advantages in advancing renovations.
Mainstreet's goal is to stabilize all of its Alberta properties by
fiscal year-end 2008. This is expected to have a positive effect on
cash flow in 2008.
3. Mitigating risk. Mainstreet will convert interim financing on non-
stabilized assets to long- term, CMHC-insured financing. This will
lower the Corporation's debt costs and will generate additional funds
to support continued growth.
Management believes the Corporation will continue to grow at a robust pace
in 2008 and beyond. This confidence is due to:
- Demonstrated strength of Mainstreet's Value Chain business model in
all types of economic conditions and geographic locations;
- Sufficient capital on hand to sustain the activity levels of the
acquisition program;
- A 38% debt to equity ratio based on the appraised market value of the
portfolio;
- Strong economic indicators; and
- The right board, management team and staff to execute the strategy.
1. Market value of the properties held on September 30, 2007 was
determined by four qualified appraisers (AACI - Accredited Appraiser Canadian
Institute).
About Mainstreet
Established in 1997, 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 (Abbotsford and Surrey), Calgary, Edmonton, Saskatoon and the Greater Toronto Area.
Mainstreet's common shares are listed on the Toronto Stock Exchange under the symbol "MEQ". There are currently 14,758,673 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.