Mainstreet Equity Corp. · TSX:MEQ
Mainstreet Equity — Q3 2012 Earnings Presentation
27 slides from Mainstreet Equity's earnings presentation, Jul 31, 2012
Slide 1: Q3 2012: Positive Trends & Value Creation Continue
Q3 2012 z Positive Trends & Value Creation Continue | TSX: MEQ Published: JULY 31, 2012 Updated: Dec. 3, 2012
Slide 2: Cautionary Statement
Cautionary Statement Forward-Looking Information Certain statements contained in this presentation with respect to Mainstreet Equity Corp (the "Corporation") constitute “forward- looking statements” as such term is used in applicable Canadian securities laws. These statements relate to analysis and
Slide 3: Mainstreet Equity Corp.
Mainstreet Equity Corp. We are a Corporation not a REIT We are an add-value consolidator of mid-market multi-family apartment buildings – Mid-Market Characteristics • Typically less than 100 units • Fragmented Mom & Pop ownership • Owner neglect and mismanagement • Greater deferred maintenance •
Slide 4: The #1 Driver in the Apartment Business
The #1 Driver in the Apartment Business Existing rental apartments are trading significantly below replacement cost Management believes: Current market rents do not justify new construction due to high costs Increasing demand and limited supply will continue to create favourable rental market co
Slide 5: Demand
Demand EDMONTON Net Migration: 16,000 (2012f) [28% of total rental universe] Rental Universe: 57,941 Calculation of ownership Premium = Principal & Interest for Avg. [Mid-market: 46,884 (81%)] (2011) Resale Home minus Avg. 2-bedroom Apartment Rent: $842 (2011) Vacancy Rate: 2.7% (Apr. 2012) CALGARY
Slide 6: The Driver Behind Our Value Creation
The Driver Behind Our Value Creation The Mainstreet ACQUISITIONS Identify and buy under-performing rental units at ‘VALUE CHAIN’ prices well below replacement costs. CAPITAL IMPROVEMENTS Increase the asset value of Mainstreet’s portfolio by renovating acquired properties. OPERATIONAL EFFICIENCIES Mi
Slide 7: Mainstreet's Competitive Advantages
Mainstreet’s Competitive Advantages 5 KEY DRIVERS 1. Acquire underperforming assets at attractive prices 2. Limited to no competition from REITs and Pension Funds in the mid-market sector 3. Internalized construction capabilities 4. Internalized operations platform / systems are scalable 5. Internal
Slide 8: Mainstreet's Competitive Advantages
Mainstreet’s Competitive Advantages High quality renovation materials sourced and shipped direct from manufacturers in China at significant discounts compared to locally supplied materials •kitchen appliances, cabinets & granite counter tops; wood laminate & tile flooring; windows; bathroom fixtures
Slide 9: Adding Value – The Mainstreet 'Spec'
Adding Value – The Mainstreet ‘Spec’ Exterior and Mechanical: 1. Façade: siding, entrance (canopy), landscaping; 2. Balconies: install glass panels and new flooring; 3. Roof and window repairs and upgrades; 4. Hallway: door, wall and flooring upgrades; 5. Insulation, furnace, boilers; 6. Elevator up
Slide 10: Operating Efficiencies
Operating Efficiencies EXPENSE REDUCTION Mainstreet’s aggressive renovation program has resulted in significant expense reductions in key areas such as: – Electrical (install compact fluorescent bulbs: LED bulbs for emergency exit signs) – Water (dual flush toilets; low-flow aerators installed on
Slide 11: Efficiencies in Mid-Market
Efficiencies in Mid-Market Higher operating margins versus larger concrete complexes – Low rise properties have relatively less operating expenses such as: • - Limited or no elevator maintenance • - No repair heat or maintenance of underground parking garage • - Amenities Lower realty taxes vers
Slide 12: Maximizing Efficiencies Through Clustering
Maximizing Efficiencies Through Clustering Mainstreet believes it has been able to maximize efficiencies and achieve economies of scale through the clustering of assets. Transforms properties from 40+ unit single assets into a larger, more efficient apartment complex. – Cluster assets within a 5 bl
Slide 13: Strategic Geographic Investing
Strategic Geographic Investing Continuous bulking up in this cluster Edmonton: Central + NAIT Edmonton Municipal Land Added 329 units to this cluster in 2012. Redevelopment 172 subsequent to YE. 75 Properties [1,850 units] (YTD) Growth Indicators • Edmonton Net Migration 2012f: 19,000 / 2013f: 16,20
Slide 14: Growth Potential in Mainstreet's Current Markets
Growth Potential in Mainstreet’s Current Markets Mainstreet's strategy benefits from a large target market with less competition. Canadian Rental Apartment Universe 92% of Mainstreet’s <100 Units/ Total Rental portfolio is in building Universe % Mid-Market Western Canada Abbotsford 3,631 3,741 97% -
Slide 15: Potential Portfolio Growth in Target Markets
Potential Portfolio Growth in Target Markets Doubling its property portfolio would give Mainstreet 8% share of the mid-market universe in its platforms, leaving significant opportunity for continued growth. 20,000 17,706 18,000 16,000 15,493 14,000 13,279 12,173 12,000 11,066 9,959 Units 10,000 8,85
Slide 16: Mainstreet: A 'Value Creation' Company
Mainstreet: A ‘Value Creation’ Company SIGNIFICANT GROWTH WITH LIMITED EQUITY DILUTION Established in 1998, Mainstreet has grown its portfolio from 272 units with a market value of $17 million to 8,096 units (Q3 2012) with a market value of $1,041 million with limited equity dilution. (Number of com
Slide 17: Value-Add Model: Saskatoon, Saskatchewan
Value-Add Model: Saskatoon, Saskatchewan Mainstreet acquired its first property in the city of Saskatoon (165 units) in November 2006. As of June 30, 2012, Mainstreet owns 32 properties (867 units) for a total consideration of $38.2 million. 27 properties (773 units) have been stabilized and refinan
Slide 18: Value-Add Model: Cedartree Village, Surrey, BC
Value-Add Model: Cedartree Village, 7155 Hall Rd., Surrey, BC Mainstreet purchased the above property (228 units) in November 2010. It took approximately 16 months to complete the stabilization process and refinance the property in March of 2012. Value creation was achieved even during recessionary
Slide 19: Value-Add Model: Oakmount Manor, Edmonton, AB
Value-Add Model: Oakmount Manor, 10710/20/30 – 110 Street NW, Edmonton, AB Mainstreet purchased the above property (72 units) in April 2011. It took approximately 12 months to complete the stabilization process and refinance the property in May 2012. Financial results for the property before and aft
Slide 20: Growing the Portfolio
Growing the Portfolio ASSET GROWTH ($MM) IFRS 2012 The mortgage loans outstanding as at June 30, 2012 were $514 million. The estimated Net Asset Value based on the appraisal value of $1,041 million, as at Q3 2012, was $527 million. FINANCIAL Copyright Mainstreet Equity Corp. 2012. All rights reserve
Slide 21: Risk Management
Risk Management CMHC INSURED MORTGAGES 2011 As of June 30, 2012, Mainstreet has $514 million of mortgages, of which $439 million (86%) are CMHC insured at an average interest rate of 4.33% and the balance of $75 million are fixed and floating with an average interest rate of 4.48%. LONG-TERM FIXED
Slide 22: Drivers of 2012
Drivers of 2012 Stabilization of existing non-stabilized portfolio which equates to 21% of the total portfolio. Achieve Optimum Potential Net Operating Income (thousands of dollars) Annualized Annualized Annualized Annualized NOI based Additional NOI at Additional NOI Additional NOI Annualized o
Slide 23: Acquisitions Q1 & Q2 2012
Acquisitions Q1 & Q2 2012 City Address # of Units Purchase Price Appraised Value Price per door (000s) (000s) (000s) Saskatoon 905 Preston Avenue E 18 $1,530 $1,600 $85 Calgary 50 Haddon Road SW 69 $8,080 $11,050 $117 Edmonton 11807 - 102 Street 14 $1,085 $1,540 $78 Edmonton 10125 - 152 Street 15 $1
Slide 24: Acquisitions Q3 & Q4 2012
Acquisitions Q3 & Q4 2012 City Address # of Units Purchase Price Appraised Value Price per door (000s) (000s) (000s) Q3 2012 Edmonton 10041 - 152 Street NW 12 $ 1,158 $1,210 $ 97 Edmonton 10443 - 156 Street 12 $ 1,092 $1,250 $ 91 Edmonton 9804 - 102 Street 9 $ 920 $1,060 $ 102 Edmonton 15216-100 Ave
Slide 25: Acquisitions Subsequent to Q4
Acquisitions Subsequent to Q4 City Address # of Units Purchase Price Appraised Value Price per door ($000s) ($000s) ($000s) Edmonton 10619 - 104 Street 12 778 1,130 65 Edmonton 11065 - 149 Street 33 4,027 4,200 122 Edmonton 11118/11124 - 124 Street 20 1,570 2,050 78 Edmonton 10630 - 107 Street 21 2,
Slide 26: Residual Land & Condo Conversion Value
Residual Land & Condo Conversion Value (Not Reflected in IFRS valuation or on Balance Sheet) RESIDUAL LAND ● 1175 Dundas - Mississauga, ON (Commercial Land) ● Trevella Park - Calgary, AB (~14 acres of High Density Residential Land) ● Dover – Calgary, AB (Residual Land) ● Imperial Court - Surrey, BC
Slide 27: Mainstreet Growth – A Snapshot
Mainstreet Growth – A Snapshot MEQ 1998 2012 Common shares outstanding at 10,465,281 June 30, 2012 Market capitalization at June 30, 2012 $287M Stock growth to $0.20 $27.38 Ownership: 40% June 30, 2012 Management and Directors Public float 60% Revenue Growth $1.78 M $64.2 M from fiscal year Q3 2012