Mainstreet Equity Corp. · TSX:MEQ
Mainstreet Equity — Q3 2010 Earnings Presentation
23 slides from Mainstreet Equity's earnings presentation, 2010
Slide 1: Mainstreet Equity Corp. - Add-Value, Mid-Market Consolidator
MAINSTREET EQUITY GORP. ADD-VALUE, MID-MARKET CONSOLIDATOR
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 (typically less than 100 units) – Add-Value consolidator In 1998, we started out with 272 units with a market value of $17 million; as at Q3 2010 w
Slide 4: 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 5: 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 6: 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 7: Demand
Demand ABBOTSFORD Net Migration: 2,390 (2009f): (Avg. 2007 – 2010f: 2,380) Rental Universe: 3,752 Calculation of ownership Premium = Principal & Interest for [Mid-market: 3,638 (97%)] (2009) Avg. Resale Home minus Avg. 2-bedroom Apartment Rent: NA Vacancy Rate: 6.1% (2009): (Avg. 2007 – 2010f: 3.8%)
Slide 8: What is Mid-Market?
What is Mid-Market? <100 UNITS / WALK-UP Characteristics of the Mid-market Universe – Fragmented sector of Mom & Pop ownership – Owner neglect and mismanagement – Greater deferred maintenance – Owners have limited access to capital – Higher vacancy / Lower rents MAINSTREET EQUITY CORP. | 8
Slide 9: 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 <100 Units/ 100+ Units/ % Mid-Market building building 90% of Mainstreet’s Abbotsford 3,638 114 97% portfolio is in Western Canada Vanc
Slide 10: Potential Portfolio Growth in Target Markets
Potential Portfolio Growth in Target Markets Tripling its property portfolio would give Mainstreet 6% share of the mid-market universe, 20,000 leaving significant opportunity for continued growth. 18,297 18,000 16,772 15,247 16,000 13,722 14,000 12,198 12,000 10,673 Units 10,000 9,148 8,000 6,366 6,
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: 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 13: 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 14: 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 b
Slide 15: Value-Added Model: Saskatoon
Value-Added Model: Saskatoon Mainstreet acquired its first Saskatoon property (165 units) in November 2006. As of June 30, 2010, Mainstreet owns 30 properties (807 units) for a total consideration of $33.8 million. Sixteen properties (448 units) have been stabilized. Financial results for the 16 pro
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 approximately $17 million to 6,366 (as at Q3, 2010) with a market value of more than $719 million with limited equity d
Slide 17: Growing the Portfolio
Growing the Portfolio ASSET GROWTH ($MM) $710 $719 Gross Book Value $679 $625 Appraised Value $520 $443 $395 $354 $316 $309 $250 $189 $170 $178 $145 $136 $142 $90 $78$105 $111 $50 $66 $11 $17 $37 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q3 2010 Year End - September 30 The mortgage
Slide 18: Geographic Growth & Corresponding NOI
Geographic Growth & Corresponding NOI GEOGRAPHIC METRICS By Net Operating Income (3 months ended June 30, 2010) Edmonton 26% Calgary 25% BC 24% Saskatoon 15% GTA 10% Edmonton Edmonton 30% 34% Edmonton 38% Calgary 39% Edmonton 34% Edmonton 30% Edmonton 28% Calgary Edmonton 38% Calgary Calgary 35% Cal
Slide 19: Risk Management
Risk Management CMHC INSURED MORTGAGES 2010 As of June 30, 2010, Mainstreet has $402 million of mortgages, of which $319 million are CMHC insured at an average interest rate of 4.66% and the balance of $83 million are fixed and floating with an average interest rate of 5.03%. It is expected that t
Slide 20: Value Add & Intensification Opportunities
Value Add & Intensification Opportunities 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 (High Density Residential Land) ● Avenue houses – C
Slide 21: Recent Acquisitions & Dispositions
Recent Acquisitions & Dispositions OCTOBER 1, 2006 to June 30, 2010 City Acquisition Date Purchase Price ($000's) Units Per Unit Abbotsford, BC & Saskatoon, SK, Brooks, AB Q4 2007 $12,300 292 $42,300 Saskatoon, SK Q1 2008 $241 11 $22,000 Abbotsford, BC & Saskatoon, SK Q2 2008 $9,929 106 $94,000 Coch
Slide 22: Mainstreet Growth – A Snapshot
Mainstreet Growth – A Snapshot MEQ 1998 2010 Common shares outstanding at 10,379,849 Jun. 30, 2010 Market capitalization at Jun. 30, 2010 $113M Stock growth to $0.20 $10.90 Ownership: 40% Jun. 30, 2010 Management and Directors Public float 60% Revenue Growth $1.78 M $50.8 M from fiscal year 9 months
Slide 23: Drivers of 2010
Drivers of 2010 Stabilization of existing non-stabilized portfolio which equates to 26% of the total portfolio. Achieve Optimum Potential Net Operating Income (thousands of dollars) Annualized NOI Annualized Additional NOI at based on Q3 full market rent and 95% Annualized Optimum 2010 results o