Avenue Commercial Castleridge LP Investment Corp. Annual General Meeting Notes

Today I attended the Avenue Commercial Castleridge LP Investment Corp. Annual General Meeting and finally learned about the status of our troubled Concrete Equities investment. There’s some bad news, and some good news. Overall though, it was net-positive: the bottom line is that there’s some debt to deal with (the vultures want their pound of flesh), but we have full ownership of our property, are cash-flow positive, and things are looking up in terms of us eventually getting back on track for the cash disbursements we all signed up for. I took as many notes as I could; here they are in point form:

  • Presented by Steven Butt, General Partner, Avenue Commercial
  • Very positive on this particular building
  • They were given millions of pages of documents by Ernst & Young; hard drives. Five months of work to process, several hundreds of thousands of pages scanned
  • They’re not going to go back and look at all the documents – they’re moving forward
  • We now have financial statements (hooray!)
  • T-5013 tax forms are available
  • Castleridge: 8.25 acres of property, 74,000 square feet of leasable space
  • Building constructed in 19991 and in good condition, but the overall property needs some work. Suffers from a few years of neglect
  • Nov 2007 we paid 24.2 million for the Castleridge location. Concrete took $3.2 million as their fee.
  • The June 2008 appraisal was $18.5 million; the June 2010 appraisal $18.2 million
  • Loss in value of $5.7 million. Why? Large promotion fee, receivership costs, spike in retail vacancy, 30% vacancy
  • Exit of CCAA after 1.5 years in July 21st, 2010

  • Cost of the receivership for all properties was $6.2 million
  • E&Y fee was $3.2 million, expensive but worth it to keep the property
  • Strategic grid note was $2.38 million for all properties, 9% interest
  • Strategic is “court savvy” and they had a contract prior to receivership. The risk was going to court for 1-2 years to fight it, which would be expensive
  • We paid Strategic to go away; painful but worth it
  • Unsecured creditors $11,752, legal costs $70,000, forbearance fee $103,344, Castleridge portion of strategic fee is $460,751, E&Y fee $670,000
  • Cash in bank was $85,000
  • Avenue took over in fall of 2010, vacancy was 29%
  • Now for some good news…
  • New Tenants: Remax, Radiology Consultants, Dollar Store, etc.
  • Ran an ad on Kijiji for free dollar store, got 30 responses. Leased in three days, was vacant for two years
  • A couple of vacancies currently
  • Just sent letter of renewal to Rexall for 10 years
  • Sales up 400% in the pub after they renovated, all tenants are happy with the increased traffic to the area
  • Tenants wanted rent reduction due to vacancies
  • Current vacancy reduced by 62%
  • Castleridge hasn’t been fully leased in four years
  • Mortgage as of Feb 2011 is $9.6 million, 5.206% interest rate
  • Projected cash flow is now $499k per year
  • We weren’t allowed to pay Strategic for many months
  • Total debt now is $587K
  • Cash flow is $499K
  • Previous property management company thought the building would be sold, so they stopped caring about collecting rental fees
  • On another property they called the sheriff and they locked the doors, within 90 minutes they had the funds
  • They want to paint the whole building this summer, paint the parking lot
  • Strategy: pay out the court ordered secured and unsecured creditors, maintain and enhance the property to make it competitive, lease up the property so there’s no vacancy, increase cash flow to the point where dividends
  • A real estate portfolio of this size has never come out of receivership before in Canada – this is a big deal
  • Dividends can come sooner, but then there’s the 9% Strategic payments
  • Calgary’s retail vacancy rates have been dropping over the past 24 months, bodes well for our property
  • Calgary has one of the strongest economies in Canada
  • The lower the retail vacancy, the higher the rates we can charge
  • Net revenue has gone up by about 40% since Avenue took over
  • There’s an investor information web site
  • Monthly reporting will be posted to the investor portal, including executive summary, financial reports, leasing updates, etc.
  • New share certificates will be issued, will include the extra money that we contributed. People who didn’t contribute will have their shares reduced slightly, people who contributed will get more shares

Q&A Session

Q: What’s with Olympia Trust continuing to take money from us?

A: Olympia Trust was invited, they declined. They have 2.5 million dollars in funds from people who tried to invest, but weren’t able to. Olympia Trust is holding some people’s money; you need to contact them to claim those funds. Olympia Trust manages our RRSP funds.

Q: How do we sell our share in Castleridge and get out?

A: They’re keeping lists of people who want to sell and those who want to buy. What’s our share worth? It depends. Avenue will connect buyers and sellers, but the negotiations are private.

Q: Will we ever see the rate of return we were initially promised?

A: Anything we got from Concrete originally, throw it out. Dividends of 6% should be do-able eventually. 70% refinancing will be a reasonable goal, when that happens investors will get a cheque.