CALGARY, Feb. 14 /CNW/ - Mainstreet Equity Corp. ("Mainstreet" or "the Corporation") delivered some positive results in Q1 2008(1) despite increased vacancy rates and operating costs due to the high proportion of acquired properties being stabilized (renovated and repositioned), especially in Edmonton. The Corporation's number one focus for Q2 is to complete the stabilization process in Edmonton by the end of Q2 2008.
Mainstreet has a distinct advantage in this period of economic and market uncertainty in that it is positioned for continued solid growth, with assets in the right markets, a sound capital structure, and available cash to fund accretive acquisitions in an opportunistic environment.
(1) This first quarter report is for the three-month period ended
December 31, 2007. Mainstreet's current fiscal year ends
September 30, 2008.
FIRST QUARTER HIGHLIGHTS
1. Stabilization efforts back on track
- In Q1 2008 the Corporation successfully addressed its labour
shortage in Edmonton and, with a full staff of workers, was able
to speed the pace of stabilization of its non-stabilized (not yet
renovated) Edmonton properties, which represent 9% of the total
portfolio.
- Stabilization of 438 units in the B.C. portfolio was completed in
Q1 2008, which represented 8% of the total portfolio.
- As of December 31, 2007, 36% of the total portfolio remained
non-stabilized compared to 46% as of September 30, 2007.
2. Portfolio grew by 17%
- As of December 31, 2007, Mainstreet's portfolio of properties had
grown to 5,261 rental units compared to 4,515 units at
December 31, 2006.
3. Mortgage costs lowered and capital generated through refinancing
- In Q1 2008, $23 million of matured and short-term mortgages were
refinanced for $33 million, raising additional funds of
$10 million. The average interest rate on these mortgages dropped
to 5.15% from 7.25%, which will result in annualized savings of
$464,000 in interest expenses over the next 10 years.
4. Overall funds from operations increased 25%
- Funds from operations (FFO) from continued operations in Q1 2008
decreased to $0.9 million ($0.06 per share), compared to
$1.3 million ($0.14 per share) in Q1 2007 due mainly to high
vacancy and operating costs during the stabilization process.
Fully diluted FFO per share was $0.06 in Q1 2008 as compared to
$0.09 in Q1 2007.
- Mainstreet sold four properties in Brooks, Alberta acquired in
August 2007 for the purpose of resale, which occurred in October
2007. FFO of $726,000 ($0.05 per share) was generated. As a
result, total FFO for Q1 2008 was $1.6 million ($0.11 per share)
compared to $1.3 million ($0.14 per share) in Q1 2007. On a fully
diluted basis, the total FFO per share was $0.11 in Q1 2008 as
compared to $0.09 in Q1 2007.
5. Rental revenue up 18% in Q1
- Total rental revenue from continuing operations was $11.2 million
in Q1 2008 compared to $9.6 million in Q1 2007. This increase is
due mainly to growth in Mainstreet's portfolio and an increase in
rental rates, particularly in the province of Alberta.
6. "Same assets" rental revenues increased 6%
- "Same assets" rental revenues increased modestly to approximately
$9.8 million in Q1 2008 from $9.2 million in Q1 2007. The
performance of same assets properties was affected adversely in Q1
by high vacancy rates and operating costs largely related to
stabilization of the Edmonton portfolio.
7. Net operating income rose 8%
- Net operating income (NOI) in Q1 2008 reached $6.5 million,
compared to $6.0 million in Q1 2007.
8. "Same assets" NOI remained steady
- "Same assets" NOI remained at $5.8 million in Q1 2008,
virtually unchanged compared to Q1 2007 levels, resulting from
high vacancy rates and operating costs due largely to
stabilization activities in Edmonton.
9. Q1 acquisition in Saskatoon
- Mainstreet acquired an additional 11 units in Saskatoon at an
average cost per door of $21,000, well below estimated market
value and replacement cost. Including this acquisition, the
Saskatoon portfolio had grown to 465 rental units at the end of
Q1 2008.
OUTLOOK
Despite the challenges related to current market conditions, Mainstreet considers this a period of opportunity where it may be able to take advantage of the flat market with less competition to acquire properties. The Corporation's acquisition strategy in the short term will be to monitor market conditions closely and purchase properties when it feels it can achieve the greatest benefits. Management expects this will result in a slowdown of acquisition activity in the next quarter. However, Mainstreet's goal remains to achieve aggressive growth. The Corporation anticipates it will resume a higher volume of acquisitions in Q3 and Q4 2008.
Mainstreet's main focus in Q2 will be to complete stabilization of its Edmonton portfolio by April 1, 2008 and achieve 95% occupancy of currently non-stabilized Edmonton properties by December 31, 2008. This is expected to have a substantial positive impact on cash flow in the 2009 fiscal year -- increasing rental revenues and lowering general and administrative and operational costs.
Stabilization of its Edmonton properties also will allow Mainstreet to convert properties currently under short-term interim financing arrangements at relatively high interest rates to long-term mortgages insured by Canada Mortgage and Housing Corporation (CMHC) at lower interest rates. This is expected to lower financing costs. The Corporation plans to refinance approximately $77 million of its $90 million of floating financing and maturing mortgages for the fiscal year 2008 and anticipates substantial savings in interest expenses will result.
Mainstreet is in an excellent position moving forward. The Corporation has a significant advantage in that its long-term mortgages are insured by CMHC. This provides some protection from the credit crunch, which appears to be a reaction to the U.S. sub-prime mortgage crisis.
The Corporation is also positioned in the strongest rental markets in Canada -- Vancouver/Lower Mainland, Calgary, Edmonton and Saskatoon -- representing 88% of its portfolio. As well, Management sees tremendous potential for future growth in rental income and acquisitions in Saskatoon. Mainstreet will continue with the normal course issuer bid, which began July 3, 2007 and will end July 2, 2008. In December 2007, the Corporation purchased and cancelled 5,000 common shares and took advantage of the current undervalued share price.
Management is optimistic about prospects in the current market environment and its proven ability to identify and follow through on opportunities. The Corporation expects a successful year because it is in the right markets, has the cash to support continued growth and does not need to rely on the capital markets to raise funds. In addition Mainstreet now has the human resources to aggressively complete the stabilization process in Edmonton, which is expected to have a substantial positive impact on financial results.
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, Saskatoon and 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.
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.