improving the lives of middle class canadians through · condo/residential space above the hotel,...

Improving the lives of middle class Canadians through

affordable apartment rentals

History of the multi-family industry

in Canada

Mainstreetbusiness model

© 2016 Mainstreet Equity Corp. All rights reserved.

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

• Owners have limited access to capital

• Higher vacancy / Lower rents

In 1998 (TSX listed 2000), we started out with 272 units with a market value of $17 million;

YTD we own and manage 10,000 units with a market value of $1.5 billion.

Our current platforms are:

5

LethbridgeEdmontonCalgarySurrey, New Westminster & Abbotsford

(28% of portfolio)

2,749units

1,657units

4,060units

1,378units

MAINSTREET EQUITY CORP. | TSX: MEQ

156units

Saskatoon

(58% of portfolio) (14% of portfolio)


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 conditions

6MAINSTREET EQUITY CORP. | TSX: MEQ

(Cost to build comparablenew apartments)

Mainstreet’s Purchase

Price

MarketValue

Replacement Cost*

MACRO FUNDAMENTAL

© 2016 Mainstreet Equity Corp. All rights reserved. 7

ABBOTSFORD

Rental Universe: 3,612 (2015)[Mid-market: 3,400 (94%)] (2015)Vacancy Rate: 1.0% (Oct. 2016f)

Net Migration: 1,300 (2016f) [36% of total rental universe]

Calculation of ownership Premium = Principal & Interest for Avg. Resale Home minus Avg. 2-bedroom Apt. Rent: NA

SURREY

Rental Universe: 5,584 (2015)[Mid-market: 4,905 (88%)] (2015)Vacancy Rate: 1.9% (@ Oct. 2015)

Net Migration: NA [NA]

Calculation of ownership Premium = Principal & Interest for Avg. Resale Home minus Avg. 2-bedroom Apt. Rent: NA

CALGARY

Rental Universe: 35,227 (2015)[Mid-market: 24,083 (68%)] (2015)Vacancy Rate: 7% (Oct. 2016f)


Calculation of ownership Premium = Principal & Interest for Avg. Resale Home minus Avg. 2-bedroom Apt. Rent: $1,192 (YTD/Nov ’15)

EDMONTON



Calculation of ownership Premium = Principal & Interest for Avg. Resale Home minus Avg. 2-bedroom Apt. Rent: $723 (YTD/Nov ‘15)

SASKATOON



Calculation of ownership Premium = Principal & Interest for Avg. Resale Home minus Avg. 2-bedroom Apt. Rent: $747 (YTD/Nov ‘15)

Effective May 30, 2014 the CMHC will no longer insure second homes and self-employed individuals who do not have third party income validation

Effective July 9, 2012 the Canadian Federal Government’s adjusted mortgage qualification regulations take effect. Key changes include: maximum amortization period for a government-insured mortgage reduced to 25 years from 30 years; to qualify for a mortgage loan Canadians can spend a maximum of 39 per cent of their gross household income on home expenses such as mortgage, property taxes and heating, and a maximum 44 per cent of income on housing expenses and all other debt.

Calculation of Ownership Premium Assumptions: Calculations of monthly carrying costs based on: 5-year posted mortgage rate; Average resale price; 25-year amortization, 5% down on purchase price.

All numbers obtained from CMHC, CREA. (CMHC calculations).

MACRO FUNDAMENTAL MAINSTREET EQUITY CORP. | TSX: MEQ


The Mainstreet

‘VALUE CHAIN’

8

ACQUISITIONS Identify and buy under-performing rental units at

prices well below replacement costs.

CAPITAL IMPROVEMENTS Increase the asset value of Mainstreet’s

portfolio by renovating acquired properties.

OPERATIONAL EFFICIENCIES Minimize operating costs through professional management, efficient technology and energy-saving equipment.

VALUE ENHANCEMENT Reposition renovated properties in the market, as a Mainstreet branded product, for higher rents, and maintain and build customer loyalty through high levels of service.

FINANCING Maintain a sound capital structure with access to capital markets.

DIVESTITURES Occasionally sell mature real estate properties to redirect capital into newer, higher potential properties.

PORTFOLIO

Q3 2016 8,486 units are stabilized out of the portfolio of 9,345 units. 91%

Stabilized

9%

Unstabilized

MICRO FUNDAMENTAL MAINSTREET EQUITY CORP. | TSX: MEQ

© 2012-15 Mainstreet Equity Corp. All rights reserved.


5 PILLARS OF MEQ

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. Internalized marketing / effective branding

9MICRO FUNDAMENTAL MAINSTREET EQUITY CORP. | TSX: MEQ


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; more…

• 80% savings realized on recent shipment of kitchen cabinets

• Renegotiated 25% discount with suppliers on materials – April 2015CHINA

INDIA

UNITED

NATIONS

Skilled IT workforce employed in India at significant wage discounts

• Website launched June 2013

• Mobile website launched Nov 2013

• Proprietary apt. industry software development (Completion in 2016)

• ‘Backroom’ office (accounting & operational depart.’s) (under evaluation)

• Call centre to be set-up (under evaluation)

Labour force recruitment

• We are proactively recruiting and training internationally sourced labour.

• 34 (10 LMIA + 24 open work permits)


© 2016 Mainstreet Equity Corp. All rights reserved. 11MICRO FUNDAMENTAL

* Direct from China manufacturers



Before

After



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 (‘Ultra-high Efficiency’ toilets; low-flow aerators installed on showers and all taps)

– Install energy efficient windows / exterior (new siding) / new Insulation

Averaging 40% savings by installing energy saving water flow devices(Pilot test of 6 buildings in Saskatoon)

The majority of the existing units have been upgraded with energy efficient devices.

Sub-metering all properties that are not currently set-up inthis manner; savings on utilities for MEQ

Ability to achieve economies of scale

– Fixed price gas contracts

– National deal on bulk purchasing discount for construction supplies

Automated debit of monthly rents

Software (‘real-time’, web-based, national operations system)

Advertising & Marketing (reduced costs by: internalizing marketing & advertising; shift advertising from print to online; invest in company website to drive rentals)

Financial Reporting (internalize design and production for annual & quarterly reports)

13

“This is a fixed cost business -every increase in revenue or reduction in expense goes to the bottom line”



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 versus larger structures

Lower hydro cost resulting from:– Elimination of heating/heat loss from elevator shafts

– Elimination of heating of underground parking garages

– Less common areas to heat and cool

14

Altus Research(March 2011)



Mainstreet believes it has been able to maximize efficiencies and achieve economies of scale through the clustering of assets.

Transforms properties from single assets into a larger, more efficient apartment complex.

– Cluster assets within a 5 block radius.

– Reduce HR costs by requiring fewer superintendents.

– Reduce the cost of having multiple property maintenance contracts.

– Reduced advertising expense.

– Installation of on-site computer terminal reduces head office administration.

– Creates dominant brand recognition in neighbourhoods

15MICRO FUNDAMENTAL MAINSTREET EQUITY CORP. | TSX: MEQ

Abbotsford EdmontonCalgary Saskatoon

© 2016 Mainstreet Equity Corp. All rights reserved. 16MICRO FUNDAMENTAL MAINSTREET EQUITY CORP. | TSX: MEQ

Cineplex

Premium Theatre

ICE DISTRICT / NAIT89 Properties [2,424 units]

NAIT Expansion

* $294 million expansion

* 5,000 additional students

* Completion: Nov. 2016

MacEwan University Expansion• New Centre for Arts and Culture

• (5 story building) 430,000 square feet of classroom,

lab, exhibit, and performance space, along with state-

of-the-art technology

• Project cost of $180 million

• The centre will open fall 2017

JW Marriott Announced54-storey building, 22 floors of hotel space and

condo/residential space above the hotel, will include 356

rooms and suites, more than 25,000 square feet in

meeting and conference space, and a 10,000 square foot

ballroom.

Operating LRT line

JW Marriott

ICE DISTRICT DEVELOPMENT: $6 B

Casino dev.

Premiere City Park (recent)

15 buildings

178 units

5.45 acres

35-

Storey

CNIB

tower


Mainstreet's strategy benefits from a large target market with less competition.

17

* Numbers obtained from CMHC (Dec. 2015)

79% of the rental universe in

MEQ’s platforms is Mid-Market

Target Markets Rental Apartment Universe

<100 Units/building

Total RentalUniverse

% Mid-Market

Abbotsford 3,400 3,612 94%

Surrey 4,905 5,584 88%

Calgary CMA 24,083 35,227 68%

Edmonton CMA 50,186 62,356 80%

Saskatoon 12,080 13,370 90%

Mainstreet’s Target Markets 94,654 120,149 79%



9,345

11,938

12,85613,775

14,69315,611

16,530

17,44818,366

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

10.2% 13.0% 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0%

Un

its

Estimated Potential Rental Apartment Market Share

18

* Numbers obtained from CMHC

MACRO FUNDAMENTAL

Doubling its property portfolio would give Mainstreet 20% share of the mid-market universe in its platforms, leaving significant opportunity for continued growth. (Q3 2016 units: 9,345)



272

904

1,370

1,667 2,280

2,606

2,734

3,550 4,286

5,250 5,562

5,939

6,419

7,362

8,180 8,478

8,780

9,319

10,000

0

2,000

4,000

6,000

8,000

10,000

12,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

YTD

Units

Units

SIGNIFICANT GROWTH WITH LIMITED EQUITY DILUTION

Established in 1998 (TSX listed in 2000), Mainstreet has grown its portfolio from 272 units with a market value of $17 million to 10,000 units (YTD) with a market value of $1.5 billion with limited equity dilution.

(Number of common shares have increased marginally from 8,883,333 in 1998 to 8,901,123 as of June 30, 2016)

From Oct. 2006 to Oct. 2010 we purchased back 4.5 million shares through NCIB and SCIB, at an avg. price of $6.87

YTD 2016 we purchased 1.4 million shares through NCIB and SIB at an avg. price of $35.59.

19

Note: In October 2004, MEQ raised $33m in 7.25% convertible debentures with a 7 year term and $6.25 conversion price.

22% CAGR (YTD)


Questions


Forward-Looking Information

Certain statements contained herein constitute “forward-looking statements” as such term is used in applicable Canadiansecurities laws. These statements relate to analysis and other information based on forecasts of future results, estimates ofamounts not yet determinable and assumptions of management. In particular, statements concerning estimates related to futureacquisitions, dispositions and capital expenditures, reduction of vacancy rate, increase of rental rates, future profitability, timing ofrefinancing of debt and completion of renovations, increased cash flow, the Corporation’s liquidity and financial capacity, theCorporation’s anticipated funding sources to meet various operating and capital obligations, expansion into the United States, andother factors and events described in this document should be viewed as forward-looking statements to the extent that theyinvolve estimates thereof. Any statements that express or involve discussions with respect to predictions, expectations, beliefs,plans, projections, objectives, assumptions of future events or performance (often, but not always, using such words or phrases as“expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or statingthat certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are notstatements of historical fact and should be viewed as forward-looking statements. Such forward-looking statements involveknown and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of theCorporation to be materially different from any future results, performance or achievements expressed or implied by suchforward-looking statements. Such risks and other factors include, among others, costs and timing of the development of existingproperties, availability of capital to fund stabilization programs, other issues associated with the real estate industry including, butwithout limitation, fluctuations in vacancy rates, unoccupied units during renovations, fluctuations in utility and energy costs,credit risks of tenants, fluctuations in interest rates and availability of capital, and other such business risks as discussed herein.Although the Corporation has attempted to identify important factors that could cause actual actions, events or results to differmaterially from those described in forward-looking statements, other factors may cause actions, events or results to be differentthan anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actualresults and future events could vary or differ materially from those anticipated in such statements. Accordingly, readers should notplace undue reliance on forward-looking statements contained herein.

Forward-looking statements are based on management’s beliefs, estimates and opinions on the date the statements are made,and the Corporation undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinionsshould change except as required by applicable securities laws.No SolicitationThe presentation is not a solicitation to purchase securities of the Corporation and should not be considered an offering or solicitation document to purchase securities of the Corporation.


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