TSE SYMBOL: BEI NYSE SYMBOL: BEI November 17, 2003
BOARDWALK ANNOUNCES RECORD THIRD QUARTER RESULTS
15% INCREASE IN FFO PER SHARE FROM RENTAL OPERATIONS IN THIRD QUARTER
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Calgary, Alberta – November 17, 2003 Boardwalk Announces Record Third Quarter Results 15% Increase In FFO Per Share From Rental Operations In Third Quarter
CALGARY, Nov. 17 /CNW/ - Boardwalk Equities Inc. ("BEI" - TSX, NYSE) is pleased to report strong financial results for the third quarter of 2003. For the third quarter ended September 30, 2003, the Company reported Total Revenues of $68.7 million and Funds From Operations ("FFO"), a key performance measurement for real estate companies, of $19.7 million. FFO per share for the third quarter was $0.39 on a diluted basis.
Funds From Operations ("FFO") is a generally accepted measure of operating performance of real estate companies, however is a non-GAAP measurement. The Company calculates FFO by taking Net Earnings and adding non cash items including Future Income Taxes and Amortization. The determination of this amount may differ from that of other real estate companies.
Highlights of the Company's third quarter 2003 financial results include: - Rental revenues of $68.7 million, an increase of 8.0% compared to $63.6 million for the three-month period ended September 30, 2002. - Net operating income of $46.5 million, representing a 5.7% increase from $44.0 million in the same period last year. - Net earnings for the period of $5.0 million compared to $3.4 million in the same period last year, an increase of 50%. Earnings per share for the most recent three-month period of $0.10 on a diluted basis, versus $0.07 for the three-month period ended September 30, 2002, representing a 42.9% increase. - Funds From Operations (FFO) of $19.7 million, an increase of 13.9% compared to $17.3 million for the three-month period ended September 30, 2002. FFO from rental operations, which excludes any gains on property dispositions, of $19.7 million, an increase of 13.9% compared to $17.3 million for the three-month period ended September 30, 2002. - FFO per share of $0.39 on a diluted basis, compared to $0.34 for the three-month period ended September 30, 2002, representing a 14.7% increase. FFO per share from rental operations, which excludes gains, was $0.39 on a diluted basis, up 14.7% compared to $0.34 for the three- month period ended September 30, 2002. Highlights of the Company's financial results for the first nine months of 2003 include: - Rental revenues of $201.1 million, an increase of 13.2% compared to $177.7 million for the nine-month period ended September 30, 2002. - Net operating income of $131.4 million, representing a 7.0% increase from $122.8 million in the same period last year. - Net earnings for the period of $9.2 million compared to $9.4 million in the same period last year, a decrease of 2.1%. Earnings per share for the most recent nine-month period of $0.18 on a diluted basis, versus $0.19 for the nine-month period ended September 30, 2002, representing a 5.3% decrease. - Funds From Operations (FFO) of $52.3 million, an increase of 5.4% compared to $49.6 million for the nine-month period ended September 30, 2002. FFO excluding gains of $51.3 million, an increase of 5.6% compared to $48.5 million for the nine-month period ended September 30, 2002. - FFO per share of $1.03 on a diluted basis, compared to $0.99 for the nine-month period ended September 30, 2002, representing a 4.0% increase. FFO per share from rental operations, which excludes gains, was $1.01 on a diluted basis, up 4.0% compared to $0.97 for the nine- month period ended September 30, 2002. Ex 2002 utility rebate, FFO per share from rental operations for the 9 months was up 12% from $.90 in 2002.
Commenting on the Company's third quarter results, Sam Kolias, President and C.E.O., stated "We are pleased with our record financial results in the third quarter. Operationally, we were able to continue to make improvements in our portfolio occupancy levels, which was a significant achievement in light of the continued strength in the housing markets. This helped drive improved same-property performance in the quarter."
Operational Highlights
The average vacancy rate across the Company's portfolio for the third quarter of 2003 was 3.7%, down from 5.0% in Q2 of 2003, and down from 4.4% in the third quarter of last year. The Company's overall average vacancy rate as of October 2003 was 3.5% compared to 4.4% as of October of 2002.
The average monthly rent realized in the first nine-months of 2003 was $729 per unit, up $27, or 3.8% from $702 per unit for the same period last year. Management estimates that market rents for its properties at the end of September, 2003 averaged $800 per unit per month which compares to an average in-place rent per occupied unit of $757 for the nine months ended September 30, 2002. This translates into an estimated "loss-to-lease" of approximately $10.1 million, maintaining existing occupancy rates.
Same-Property Results
The "same-property" results for the Company's stabilized properties (defined as properties owned for over 24 months) for the three month period ended September 30, 2003 showed rental growth of 2.9% and NOI growth of 3.2% compared to the same period last year.
For the nine month period ended September 30, 2003, the stabilized property portfolio had rental growth of 2.3% and a decline in NOI of 1.6% compared to the same period last year. Of special note is Calgary's positive rental revenue and NOI growth, reversing the past two quarters negative trend. The year-to-date comparison is affected by the impact of a non-recurring gas utility rebate received in the first quarter of 2002 for a significant portion of the Company's Alberta properties. Excluding the non-recurring rebate, the Company's stabilized properties in the first nine months of 2003 would have showed rental growth of 2.3% and NOI growth of 1.3%.
A total of 25,595 units, representing approximately 82% of Boardwalk's total portfolio, were classified as stabilized as at September 30, 2003.
Same-Property Results - Stabilized Portfolio
Three Months Ended September 30, 2003 vs. Three Months Ended
September 30, 2002
-------------------------------------------------------------------------
Total
Rental Utility Operating
Revenue Utilities Rebate Other Costs NOI
-----------------------------------------------------------
Calgary 1.2% 0.3% - 3.1% 2.2% 0.9%
Edmonton 3.3% -11.0% - 6.5% -0.8% 5.1%
Other Alberta -0.6% 1.7% - 21.8% 14.9% -6.0%
Ontario 4.2% 8.1% - 10.5% 9.9% -0.4%
Saskatchewan 4.3% -8.4% - -2.6% -3.9% 9.2%
-----------------------------------------------------------
2.9% -4.8% - 5.7% 2.2% 3.2%
-----------------------------------------------------------
-----------------------------------------------------------
Same-Property Results - Stabilized Portfolio
Nine Months Ended September 30, 2003 vs. Nine Months Ended
September 30, 2002
-------------------------------------------------------------------------
Total
Rental Utility Operating
Revenue Utilities Rebate Other Costs NOI
-----------------------------------------------------------
Calgary -0.8% -4.6% -100.0% 10.6% 6.5% -3.3%
Edmonton 3.1% -5.9% -100.0% 12.7% 20.4% -3.3%
Other Alberta -0.9% -1.8% -100.0% 11.7% 18.9% -7.7%
Ontario 4.7% 12.6% - 5.8% 8.2% 1.9%
Saskatchewan 3.6% -8.3% - 1.9% -1.2% 6.7%
-----------------------------------------------------------
2.3% -2.3% -100.0% 8.6% 11.0% -1.6%
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
Excluding One
Time Rebate 2.3% -2.3% 0 8.6% 4.31% 1.3%
-----------------------------------------------------------
-----------------------------------------------------------
Acquisition/Disposition Activity
As previously disclosed, in the third quarter of 2003, the Company
completed the acquisition of a total of 649 additional units in Quebec City
for a total acquisition price of $45.0 million. The estimated going-in cap
rate on these acquisitions averaged approximately 8%. The properties acquired
were:
Les Appartements du Verdier, Quebec City (Sainte-Foy) - an apartment
complex consisting of 14-buildings with a total of 195 residential
units and total rentable area of 152,600 square feet. The transaction
closed on July 30, 2003. The acquisition price of $11.5 million equates
to approximately $59,000 per unit.
Quebec City Portfolio - On August 6, 2003, the Company closed on the
acquisition of a 454-unit portfolio in Quebec City. The acquisition
price of the portfolio was $33.5 million, which equates to
approximately $73,800 per unit.
To date in 2003, the Company has completed the acquisition of a total of
1,956 units at a total acquisition price of $106 million. This has increased
the Company's portfolio by 7% since December 31, 2002, to a total of
approximately 31,200 units.
There were no property dispositions in the third quarter of either 2003
or 2002.
Continued Financial Strength
The Company maintained its strong financial position in the quarter.
Boardwalk's total mortgage debt was $1.38 billion as at September 30, 2003, up
from $1.31 billion at December 31, 2002. As of September 30, 2003, the
Company's debt had an average maturity of 4.3 years with a weighted average
interest rate of 5.77%, and the Company's debt-to-total-market-capitalization
ratio was 64.1%. The Company's coverage ratio of adjusted EBITDA to interest
expense excluding gains for the nine month period ended September 30, 2003 was
1.98 times compared to 1.97 times in the same period last year. The coverage
ratio of adjusted EBITDA to interest expense excluding gains for the three
month period ended September 30, 2003 was 2.10 versus 1.99 in the same period
last year.
Quarterly Dividend Announced
On Friday November 14th, the Board of Directors declared a quarterly cash
dividend of $0.075 (Canadian) per share on the outstanding common shares. The
dividend is payable on December 10, 2003 to shareholders of record at the
close of business on November 28, 2003. The dividend equates to an annual cash
dividend rate of $0.30 per common share.
Board Reviewing Possible Conversion to a REIT
Boardwalk has recently announced that it has engaged CIBC World Markets,
Deloitte & Touche LLP, PricewaterhouseCoopers LLP and Stikeman Elliott LLP to
advise the Corporation on the reorganization of the Corporation as a Real
Estate Investment Trust.
At a meeting held on November 5, 2003, the Board of Directors of BEI
reviewed the proposal for the reorganization and concluded that the proposal
had the potential to increase shareholder value. The Board of Directors
determined to form a Special Committee of Independent Board members to ensure
that the reorganization is fair to all shareholders.
Management anticipates a further press release in the near future
outlining the effects of the proposed reorganization once annual budgeting is
completed and various technical aspects of the reorganization are reviewed.
This reorganization is subject to shareholder and regulatory approval, as
well as final approval by the Board of Directors of BEI. Various consents of
the Corporation's lenders are also necessary. There is no certainty at this
time that the reorganization will be implemented.
2003 and 2004 Earnings Guidance
Rob Geremia, Senior Vice President, Finance and CFO, stated, "We are
reaffirming our fiscal 2003 guidance for total FFO per share of between $1.34
and $1.38. For 2004, we are introducing our guidance for FFO per share of
between $1.44 and $1.50 for the Corporation, which does not include any
contribution from property sales, approximately 1.0 to 2.0 percent same store
NOI growth, 1000 to 2000 new units, and $1.0 million in large corporations tax
savings. Boardwalk's Special Committee continues its process of reviewing the
proposed conversion to a Real Estate Investment Trust. Assuming the REIT
conversion takes place, all of Boardwalk's current 2.8 million stock options
would vest bringing the total outstanding shares up to 53.6 million. This
action could result in additional Large Corporation Tax savings. We will
continue to update the market as this process continues."
Supplementary Information
Boardwalk produces Quarterly Supplemental Information that provides
detailed information regarding the Company's activities during the quarter.
The Third Quarter Supplemental Information is available on the INVESTOR
section of our website (www.bwalk.com).
Teleconference on Third Quarter, 2003 Financial Results
We invite you to participate in the teleconference that will be held to
discuss the Company's third quarter 2003 results this morning at 11:00am EST.
Senior management will speak to the financial results and provide a corporate
update. Presentation materials and a Supplementary Information Package for the
third quarter of 2003 will be made available on the INVESTOR section of our
website (www.bwalk.com) prior to the call. Participation & Registration:
Please RSVP to Investor Relations at 403-531-9255 or by email to
investor(at)bwalk.com.
Teleconference: The telephone numbers for the conference are:
416-640-4127 (within Toronto) or toll-free 1-800-814-4861 (outside Toronto).
Webcast: Investors will be able to listen to the call and view our slide
presentation over the Internet by visiting http://investor.bwalk.com 15 min.
prior to the start of the call. An information page will be provided for any
software needed and system requirements. The live audiocast will also be
available at
http://www.newswire.ca/webcast/viewEventCNW.html?eventID(equal sign)676060.
Replay: An audio recording of the teleconference will be available
approximately one hour after the call until 11:59pm EST on November 24th,
2003. You can access it by dialing 416-640-1917 and using the passcode
21024037 followed by the number sign. An audio archive will also be available
on our Investor site (http://investor.bwalk.com) approximately two hours after
the conference call.
Corporate Profile
Boardwalk Equities Inc. is Canada's largest owner/operator of multi-
family rental communities. Boardwalk currently owns in excess of 250
properties with over 31,200 units totalling approximately 26 million net
rentable square feet. The company's portfolio is concentrated in the provinces
of Alberta, Saskatchewan, Ontario and Quebec. Boardwalk is headquartered in
Calgary and its shares are listed on both the Toronto Stock Exchange and the
New York Stock Exchange and trade under the symbol BEI. The Company has a
total market capitalization of approximately $2.3 billion.
Additional information is available at Boardwalk's web site at
www.bwalk.com. Recent investor information can be found on the Internet at
http://investor.bwalk.com/.
Forward-Looking Statements
This release contains forward-looking statements within the meaning of
the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking
statements are statements that involve risks and uncertainties, including, but
not limited to, changes in the demand for apartment and town home rentals, the
effects of economic conditions, the impact of competition and competitive
pricing, the effects of the Company's accounting policies and other matters
detailed in the Company's filings with Canadian and United States securities
regulators available on SEDAR in Canada and by request through the Securities
and Exchange Commission in the United States, including matters set forth in
the Company's Annual Report to Shareholders under the heading "Management's
Discussion and Analysis". Because of these risks and uncertainties, the
results, expectations, achievements, or performance described in this release
may be different from those currently anticipated by the Company.
CONSOLIDATED BALANCE SHEETS
(CDN$ THOUSANDS)
AS AT September December
30, 31,
2003 2002
(Unaudited) (Audited)
----------- -----------
Assets
Revenue producing properties $1,714,227 $1,604,277
Properties held for development 7,386 7,038
Mortgages and accounts receivable 10,975 14,704
Other assets 13,036 13,723
Deferred financing costs 37,161 37,521
Segregated tenants' security deposits 7,039 7,596
Cash and cash equivalents 32 23,631
-------------------------------------------------------------------------
$1,789,856 $1,708,490
----------- -----------
----------- -----------
Liabilities
Mortgages payable $1,382,602 $1,307,177
Accounts payable and accrued liabilities 16,119 21,498
Refundable tenants' security deposits and other 10,013 10,496
Capital lease obligations 3,795 4,598
Future income taxes (NOTE 7) 68,173 62,976
-------------------------------------------------------------------------
$1,480,702 $1,406,745
----------- -----------
Shareholders' Equity
Share capital (NOTE 5) $ 270,894 $ 266,516
Retained earnings 38,260 $ 35,229
-------------------------------------------------------------------------
$ 309,154 $ 301,745
-------------------------------------------------------------------------
$1,789,856 $1,708,490
----------- -----------
----------- -----------
See accompanying notes to the consolidated financial statements
CONSOLIDATED STATEMENTS OF EARNINGS
(CDN$ THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 30, 30, 30,
2003 2002 2003 2002
-----------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue
Rental income $ 68,717 $ 63,560 $ 201,099 $ 177,731
Sales - properties
held for resale
(NOTE 2) - - 7,498
-------------------------------------------------------------------------
$ 68,717 $ 63,560 $ 201,099 $ 185,229
-----------------------------------------------
Expenses
Revenue producing
properties:
Operating expenses $ 8,624 $ 6,854 $ 25,003 $ 18,634
Utilities 6,851 6,366 25,145 22,344
Utility rebate (NOTE 8) - - - (3,302)
Property taxes 6,702 6,328 19,591 17,237
Cost of sales -
properties held for
resale (NOTE 2) - - - 6,531
Administration 5,857 4,679 17,535 14,364
Financing costs 19,391 19,741 57,366 55,072
Deferred financing
costs amortization 732 1,478 2,565 2,501
Amortization 12,973 11,472 37,590 33,959
-------------------------------------------------------------------------
$ 61,130 $ 56,918 $ 184,795 $ 167,340
-----------------------------------------------
Earnings from continuing
operations before
income taxes $ 7,587 $ 6,642 $ 16,304 $ 17,889
Large corporations taxes 828 824 2,668 2,347
Future income
taxes (NOTE 7) 1,614 2,380 5,169 6,203
-------------------------------------------------------------------------
Earnings from continuing
operations $ 5,145 $ 3,438 $ 8,467 $ 9,339
Earnings from discontinued
operations, net of tax
(NOTE 4) - 5 751 24
-----------------------------------------------
Net earnings for
the period $ 5,145 $ 3,443 $ 9,218 $ 9,363
-----------------------------------------------
-----------------------------------------------
Basic earnings
per share (NOTE 6)
- from continuing
operations $0.10 $0.07 $0.17 $0.19
- from discontinued
operations $0.00 $0.00 $0.01 $0.00
-----------------------------------------------
Basic earnings per share $0.10 $0.07 $0.18 $0.19
-----------------------------------------------
-----------------------------------------------
Diluted earnings per
share (NOTE 6)
- from continuing
operations $0.10 $0.07 $0.17 $0.19
- from discontinued
operations $0.00 $0.00 $0.01 $0.00
-----------------------------------------------
Diluted earnings per share $0.10 $0.07 $0.18 $0.19
-----------------------------------------------
-----------------------------------------------
See accompanying notes to the consolidated financial statements
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(CDN$ THOUSANDS)
9 months 9 months
ended ended
September September
30, 30,
2003 2002
-----------------------
(Unaudited) (Unaudited)
Retained earnings, beginning of period $ 35,229 $ 26,782
Net earnings for the period 9,218 9,363
Dividends paid (5,795) (2,477)
Premium on share repurchases (392) (579)
-------------------------------------------------------------------------
Retained earnings, end of period $ 38,260 $ 33,089
-----------------------
-----------------------
See accompanying notes to the consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CDN$ THOUSANDS)
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 30, 30, 30,
2003 2002 2003 2002
-----------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash obtained from
(applied to):
Operating activities
Net earnings for
the period $ 5,145 $ 3,443 $ 9,218 $ 9,363
Earnings from
discontinued operations
(NOTE 4) - (5) (751) (24)
Income taxes 1,614 2,380 5,169 6,203
Amortization 12,973 11,472 37,590 33,959
-------------------------------------------------------------------------
Funds from
continuing
operations $ 19,732 $ 17,290 $ 51,226 $ 49,501
Funds from
discontinued
operations - 23 33 79
Net change in operating
working capital 592 (1,506) 916 2,032
Net change in properties
held for development (123) (116) 1,549 5,741
-------------------------------------------------------------------------
Total cash provided by
operating activities $ 20,201 $ 15,691 $ 53,724 $ 57,353
-----------------------------------------------
Financing activities
Issue of common shares
for cash (net of
issue costs) $ 601 $ 1,931 $ 4,614 $ 7,515
Stock repurchase program - - (628) (1,045)
Dividends paid (3,785) - (5,795) (2,477)
Financing of revenue
producing properties 60,954 29,746 149,818 130,629
Repayment of debt on
revenue producing
properties (39,578) (36,506) (115,364) (112,435)
Deferred financing costs
incurred (net of deferred
financing costs
amortization) (1,808) 687 (2,745) (1,167)
-------------------------------------------------------------------------
$ 16,384 $ (4,142) $ 29,900 $ 21,020
-----------------------------------------------
Investing activities
Purchases of revenue
producing properties
(NOTE 3) $ (22,296) $ (625) $ (68,831) $ (75,442)
Project improvements to
revenue producing
properties (15,427) (11,840) (38,726) (26,786)
Net cash proceeds from
sale of properties - - 1,223 -
Technology for real
estate operations 49 (1,818) (889) (2,491)
-------------------------------------------------------------------------
$ (37,674) $ (14,283) $(107,223) $(104,719)
-----------------------------------------------
Decrease in cash and
cash equivalents balance
during the period $ (1,089) $ (2,734) $ (23,599) $ (26,346)
Cash and cash equivalents,
beginning of period $ 1,121 $ 2,060 $ 23,631 $ 25,672
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 32 $ (674) $ 32 $ (674)
-----------------------------------------------
-----------------------------------------------
Taxes paid $ 832 $ 824 $ 2,566 $ 2,347
-----------------------------------------------
-----------------------------------------------
Interest paid $ 18,928 $ 20,775 $ 57,016 $ 54,262
-----------------------------------------------
-----------------------------------------------
See accompanying notes to the consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended September 30, 2003
(TABULAR AMOUNTS IN CDN$ THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE
AMOUNTS UNLESS OTHERWISE STATED)
1. BASIS OF PRESENTATION
These unaudited interim consolidated financial statements of
Boardwalk Equities Inc. (the "Corporation") have been prepared in
accordance with the recommendations of the handbook of the Canadian
Institute of Chartered Accountants ("CICA Handbook") and with the
recommendations of the Canadian Institute of Public and Private Real
Estate Companies ("CIPPREC") and are consistent with those used in
the audited consolidated financial statements as at and for the year
ended December 31, 2002, except as described in Note 2 below. These
interim financial statements do not include all of the disclosures
required by Canadian generally accepted accounting principles
("Canadian GAAP") applicable to annual financial statements, and
therefore, they should be read in conjunction with the audited
consolidated financial statements.
The preparation of financial statements in accordance with Canadian
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and to make
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from
those estimates.
Due to seasonality, the operating results for the three and nine
months ended September 30, 2003 are not necessarily indicative of the
results that may be expected for the full year ending December 31,
2003.
2. ACCOUNTING POLICY CHANGES
Stock-based compensation plans
Effective January 1, 2003, the Corporation changed its accounting
policy for stock options granted on or after that date to reflect the
adoption of the revised CICA Handbook section 3870. Under the new
policy, the Corporation now determines the fair value of stock
options, using an accepted option-pricing model, on their grant date
and recognizes this amount as compensation expense over the period
the stock options vest, with a corresponding increase to contributed
surplus in shareholders' equity. The new accounting policy has been
applied prospectively in accordance with the transitional provision
of section 3870.
Previously under the Corporation's intrinsic value method policy, the
Corporation did not record compensation expense for stock options
granted to directors, executives and employees in the financial
statements because there was no intrinsic value at the date of grant.
Note 5 discloses the pro forma amounts to the Corporation's net
earnings and net earnings per share for the three and nine months
ended September 30, 2003 and 2002 had the impact of compensation
costs using the fair value method been applied effective January 1,
2002.
Disposal of long-lived assets
Effective January 1, 2003, the Corporation adopted the new CICA
Handbook Section 3475, Disposal of Long-Lived Assets and Discontinued
Operations, for disposals on or after January 1, 2003. The
recommendations of this section requires disposal of long-lived
assets be classified as held for sale, and the results of operations
and cash flows associated with the assets disposed be reported
separately as discontinued operations, less applicable income taxes.
A long-lived asset is classified by the Corporation as an asset held
for sale at the point in time when it is available for immediate
sale, management has committed to a plan to sell the asset and is
actively locating a buyer for the asset at a sales price that is
reasonable in relation to the current fair value of the asset, and
the sale is probable and expected to be completed within a one-year
period. For unsolicited interest in a long-lived asset, the asset is
classified as held for sale only if all the conditions of the
purchase and sale agreement have been met, a sufficient purchaser
deposit has been received and the sale is probable and expected to be
completed shortly after the end of the current period. The impact of
adopting the new recommendations for disposals of long-lived assets
on or after January 1, 2003 is disclosed in Note 4.
Disclosure of guarantees
Effective January 1, 2003, the Corporation adopted Accounting
Guideline 14 (AcG-14), Disclosure of Guarantees. This guideline
provides assistance regarding the identification of guarantees and
requires a guarantor to disclose the significant details of
guarantees that have been given, regardless of whether it will have
to make payments under the guarantees. Please refer to Note 10 for
further disclosure on the Corporation's guarantees.
Comparative figures
Certain comparative figures have been reclassified to conform with
the presentation of the current period, or as a result of accounting
changes.
3. ACQUISITIONS AND DISPOSITIONS OF REVENUE PRODUCING PROPERTIES
Acquisitions
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 30, 30, 30,
2003 2002 2003 2002
-----------------------------------------------
Cash paid $ 22,296 $ 625 $ 68,831 $ 75,442
Debt assumed 23,468 1,231 38,834 110,828
---------------------------------------------------------------------
Total purchase price $ 45,764 $ 1,856 $ 107,665 $ 186,270
Fair value adjustment
to debt 1,268 - 2,137 19,500
---------------------------------------------------------------------
Book value $ 47,032 $ 1,856 $ 109,802 $ 205,770
-----------------------------------------------
-----------------------------------------------
Units acquired 649 52 1,956 3,212
-----------------------------------------------
-----------------------------------------------
Dispositions
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 30, 30, 30,
2003 2002 2003 2002
-----------------------------------------------
Cash received $ - $ - $ 1,385 $ 3,026
Vendor take back
mortgage - - - 500
Debt assumed by
the purchaser - - 1,655 3,972
---------------------------------------------------------------------
Total proceeds $ - $ - $ 3,040 $ 7,498
Net book value $ - $ - $ 1,993 $ 6,531
---------------------------------------------------------------------
Gain on sales before
income taxes $ - $ - $ 1,047 $ 967
-----------------------------------------------
-----------------------------------------------
Units sold - - 40 121
-----------------------------------------------
-----------------------------------------------
4. DISPOSAL OF LONG-LIVED ASSETS AND DISCONTINUED OPERATIONS
During the first quarter of 2003, the Corporation received a
$3.0 million unsolicited offer to purchase a 40-unit property located
in Edmonton, Alberta. The sale was completed by the end of the first
quarter. There were no other dispositions during the current year to
date. Note 3 discloses the carrying amounts of the major assets and
liabilities included in the disposition. The following tables set
forth the results of operations and cash flows associated with the
long-lived asset, separately reported as discontinued operations for
the current and prior periods.
Earnings from Discontinued Operations
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 30, 30, 30,
2003 2002 2003 2002
-----------------------------------------------
Revenue
Rental income $ - $ 81 $ 86 $ 238
Expenses
Revenue producing
properties:
Operating expenses $ - $ 13 $ 4 $ 30
Utilities - 11 17 30
Utility rebate
(NOTE 8) - - - (1)
Property taxes - 6 6 16
Administration - 2 2 7
Financing costs - 26 24 77
Deferred financing
costs amortization - - - -
Amortization - 15 - 42
-----------------------------------------------
$ - $ 73 $ 53 $ 201
-----------------------------------------------
Operating earnings
from discontinued
operations before
undernoted items
and income taxes $ - $ 8 $ 33 $ 37
Future income taxes - (3) (12) (13)
Operating earnings from
discontinued
operations $ - $ 5 $ 21 $ 24
Gain on disposition - - 1,047 -
Future income taxes - - (317) -
-----------------------------------------------
Earnings from
discontinued operations $ - $ 5 $ 751 $ 24
-----------------------------------------------
-----------------------------------------------
5. SHARE CAPITAL
(a) Issued
September 30, 2003 December 31, 2002
---------------------------------------
Number Amount Number Amount
------ ------ ------ ------
Common shares
outstanding (THOUSAND) 50,481 $270,894 50,109 $266,516
---------------------------------------
---------------------------------------
(b) Stock Options
The Corporation has a stock option plan that provides for the
granting of options to directors, executives and employees. The stock
option plan provides for the granting of options to purchase up to
10,643,636 (December 31, 2002 - 10,643,636) common shares. The
exercise price is equal to the market value of the common shares at
the date of grant. As at September 30, 2003, there was a total of
2,851,300 (December 31, 2002 - 3,480,072) options outstanding to
directors, officers and employees. The exercise prices range from
$9.11 to $16.73 (December 31, 2002 - $9.11 to $22.92). These options
expire up to August 28, 2012.
September 30, 2003 December 31, 2002
-------------------------------------------
Weighted Weighted
average average
9 months exercise 12 months exercise
options price options price
---------------------------------------------------------------------
Outstanding, beginning
of period 3,480,072 $ 12.46 3,647,834 $ 12.60
Granted - - 930,722 $ 12.16
Exercised (415,733) $ 11.10 (801,633) $ 11.02
Forfeited (213,039) $ 19.14 (296,851) $ 17.14
---------------------------------------------------------------------
Outstanding,
end of period 2,851,300 $ 12.21 3,480,072 $ 12.46
-------------------------------------------
-------------------------------------------
Options exercisable at period end
The following table summarized information about the options
outstanding at September 30, 2003:
Options outstanding Options exercisable
-------------------------------------------------------------------------
Weighted Weighted
average average
remaining Weighted remaining Weighted
Range of Number contrac- average Number contrac- average
exercise out- tual life exercise exerci- tual life exercise
prices standing (years) price sable (years) price
-------------------------------------------------------------------------
$9.01 to
$11.00 456,000 6.5 $9.51 417,200 6.5 $9.51
$11.01 to
$13.00 1,782,622 5.8 $11.97 1,086,364 6.2 $11.89
$13.01 to
$15.00 349,578 5.6 $14.00 283,182 5.4 $13.90
$15.01 to
$17.00 263,100 5.6 $16.20 195,320 5.5 $16.27
-------------------------------------------------------------------------
2,851,300 5.9 $12.21 1,982,066 6.1 $12.11
------------------------------------------------------------
------------------------------------------------------------
The following table illustrates the impact on the Corporation's net
income and earnings per share if compensation expense had been
recorded in the current and prior periods based on the fair value of
all stock options granted on or after January 1, 2002:
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 30, 30, 30,
2003 2002 2003 2002
-----------------------------------------------
Compensation Costs $ (509) $ (535) $ (1,555) $ (1,381)
Net Earnings
As reported $ 5,145 $ 3,443 $ 9,218 $ 9,363
Pro forma $ 4,636 $ 2,908 $ 7,663 $ 7,982
Net Earnings per
Common Share
Basic
As reported $ 0.10 $ 0.07 $ 0.18 $ 0.19
Pro forma $ 0.09 $ 0.06 $ 0.15 $ 0.16
Diluted
As reported $ 0.10 $ 0.07 $ 0.18 $ 0.19
Pro forma $ 0.09 $ 0.06 $ 0.15 $ 0.16
The fair value of options granted in the prior year was estimated to
be $6.74 on the date of grant using the Black-Scholes option-pricing
model with weighted average assumptions for grants as follows:
9 months 9 months
ended ended
September September
30, 30,
2003 2002
Risk free interest rate 5.33% 5.33%
Expected lives (years) 7 - 10 years 7 - 10 years
Expected volatility 42.56% 42.56%
Dividend per share $0.05 $0.05
6. PER SHARE CALCULATIONS
The following table sets forth the computation of basic and diluted
earnings per share with respect to earnings from continuing
operations and earnings from discontinued operations.
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 30, 30, 30,
2003 2002 2003 2002
-----------------------------------------------
Numerator
Earnings from
continuing
operations $ 5,145 $ 3,438 $ 8,467 $ 9,339
Earnings from
discontinued
operations $ - $ 5 $ 751 $ 24
---------------------------------------------------------------------
Denominator
Denominator for
basic earnings per
share - weighted
average shares
(THOUSANDS) 50,458 49,879 50,304 49,600
---------------------------------------------------------------------
Effect of dilutive
securities Stock
options (THOUSANDS) 598 662 544 513
Denominator for
diluted earnings per
share adjusted for
weighted average
shares and assumed
conversion (THOUSANDS) 51,056 50,541 50,848 50,113
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic and diluted
earnings per share
from continuing
operations $0.10 $0.07 $0.17 $0.19
---------------------------------------------------------------------
Basic and diluted
earnings per share
from discontinued
operations $0.00 $0.00 $0.01 $0.00
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
7. FUTURE INCOME TAXES
The Corporation's provision for future income taxes is comprised as
follows:
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 30, 30, 30,
2003 2002 2003 2002
-----------------------------------------------
Continuing operations $ 1,614 $ 2,380 $ 5,169 $ 6,203
Discontinued operations - 3 329 13
---------------------------------------------------------------------
Total future income
taxes $ 1,614 $ 2,383 $ 5,498 $ 6,216
-----------------------------------------------
-----------------------------------------------
The future income tax expense is computed as follows:
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 30, 30, 30,
2003 2002 2003 2002
-----------------------------------------------
Tax expense based on
expected rate of 37%
(2002 - 36%) $ 2,666 $ 2,385 $ 6,451 $ 6,415
Non-taxable portion
of capital gain - (2) (223) (199)
Adjustment to future
income tax liabilities (144) - 772 -
Adjustment for change
in effective tax rate (908) - (1,502) -
---------------------------------------------------------------------
Future income tax
expense $ 1,614 $ 2,383 $ 5,498 $ 6,216
-----------------------------------------------
-----------------------------------------------
The future income tax liability is calculated as follows:
AS AT September 30, December 31,
2003 2002
----------------------------
Tax assets related to operating losses $73,869 $63,254
Tax liabilities related to differences
in tax and book basis (142,042) (126,230)
---------------------------------------------------------------------
Future income tax liability $(68,173) $(62,976)
----------------------------
----------------------------
8. UTILITY REBATE
As of March 2, 2002, ATCO Gas, the transporter of all natural gas in
Alberta, distributed a non-recurring rebate. The Alberta Energy and
Utility Board instructed ATCO Gas to rebate a portion of the sale
proceeds of the Viking-Kinsella producing assets to ATCO North
customers in the form of a one-time rebate. The rebate was
distributed to all ATCO North customers, based on historical usage,
at a rate of $3.325/GJ.
9. COMMITMENTS AND CONTINGENCIES
The Corporation has long-term supply arrangements with two electrical
utility companies to supply the Corporation with its electrical power
needs for Alberta for the next three to fifteen months at a blended
rate of approximately $0.07/kwh. These agreements provide that the
Corporation purchase its power for all Alberta properties under
contract for the upcoming months.
The Corporation also has two physical settlement fixed-price supply
contracts for Alberta natural gas requirements. These contracts fix
the price of natural gas for 75% of the Corporation's requirements in
Alberta. The two contracts are for physical settlement, and each
represents approximately 37.5% of the Corporation's Alberta
requirements. The first of these contracts runs from January 1, 2003
to September 30, 2004 and provide the commodity at a price of
$5.44/GJ. The second contract runs from October 1, 2003 to September
30, 2005 and provides the commodity at a price of $6.16/GJ.
In Saskatchewan, the Corporation has a physical supply agreement to
supply 100% of the Corporation's natural gas requirements for that
province. The agreement extends until October 31, 2005 at a fixed
price of $5.20/GJ.
10. GUARANTEES
In the normal course of business, the Corporation enters into various
agreements that may contain features that meet the AcG-14 definition
of a guarantee. AcG-14 defines a guarantee to be a contract
(including an indemnity) that contingently requires the Corporation
to make payments to the guaranteed party based on (i) changes in an
underlying interest rate, foreign exchange rate, equity or commodity
instrument, index or other variable, that is related to an asset, a
liability or an equity security of the counterparty, (ii) failure of
another party to perform under an obligating agreement or (iii)
failure of a third party to pay its indebtedness when due.
In connection with the sales of properties by the Corporation, a
mortgage assumed by the purchaser will have an indirect guarantee
provided by Boardwalk to the lender until the mortgage is refinanced
by the purchaser. In the event of default by the purchaser, Boardwalk
would be liable for the outstanding mortgage balance. The
Corporation's maximum exposure as at September 30, 2003 is
approximately $8.1 million. In the event of default, the
Corporation's recourse for recovery includes the sale of the
respective building asset. The Corporation expects that the proceeds
from the sale of the building asset will cover, and in most
likelihood exceed, the maximum potential liability associated with
the amount being guaranteed. Therefore, as at September 30, 2003, no
amounts have been recorded in the consolidated financial statements
with respect to the above noted indirect guarantees.
11. SEGMENTED INFORMATION
The Corporation specializes in multi-family residential housing and
operates primarily within one business segment in four provinces
located in Canada. The following summary presents segmented financial
information for the Corporation's continuing operations by geographic
location:
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 30, 30, 30,
2003 2002 2003 2002
-----------------------------------------------
Alberta
Revenue $ 38,505 $ 37,918 $ 114,033 $ 113,180
Expenses
Operating 4,783 3,069 14,151 11,265
Utilities 3,924 4,070 13,750 14,305
Utility rebate - - - (3,292)
Property taxes 2,658 3,104 8,301 8,420
-----------------------------------------------
11,365 10,243 36,202 30,698
-----------------------------------------------
Net operating income
from continuing
operations $ 27,140 $ 27,675 $ 77,831 $ 82,482
-----------------------------------------------
-----------------------------------------------
Saskatchewan
Revenue $ 8,510 $ 8,170 $ 25,353 $ 24,377
Expenses
Operating 1,165 1,153 3,327 3,011
Utilities 643 684 2,716 2,939
Property taxes 1,217 1,270 3,616 3,657
-----------------------------------------------
3,025 3,107 9,659 9,607
-----------------------------------------------
Net operating income
from continuing
operations $ 5,485 $ 5,063 $ 15,694 $ 14,770
-----------------------------------------------
-----------------------------------------------
Ontario
Revenue $ 8,699 $ 8,369 $ 25,919 $ 24,851
Expenses
Operating 1,136 1,054 3,582 3,340
Utilities 1,077 987 4,421 3,914
Property taxes 1,470 1,372 4,174 4,007
-----------------------------------------------
3,683 3,413 12,177 11,261
-----------------------------------------------
Net operating income
from continuing
operations $ 5,016 $ 4,956 $ 13,742 $ 13,590
-----------------------------------------------
-----------------------------------------------
Quebec (2002 - 5 months
of operations only)
Revenue $ 12,767 $ 7,086 $ 34,771 $ 12,399
Expenses
Operating 1,488 712 3,812 1,077
Utilities 1,177 559 4,136 998
Property taxes 1,295 557 3,425 1,086
-----------------------------------------------
3,960 1,828 11,373 3,161
-----------------------------------------------
Net operating income
from continuing
operations $ 8,807 $ 5,258 $ 23,398 $ 9,238
-----------------------------------------------
-----------------------------------------------
Total
Net operating income
from continuing
operations $ 46,448 $ 42,952 $ 130,665 $ 120,080
Unallocated revenue(x) 236 2,017 1,023 10,422
Unallocated
expenses(xx) (41,539) (41,531) (123,221) (121,163)
-----------------------------------------------
Net income from
continuing
operations $ 5,145 $ 3,438 $ 8,467 $ 9,339
-----------------------------------------------
-----------------------------------------------
AS AT September 30, December 31,
2003 2002
----------------------------
Alberta
Identifiable Assets
Revenue Producing properties $ 970,855 $ 971,598
Mortgages and accounts receivable 6,178 8,550
Deferred financing costs 25,638 25,464
Tenants' security deposit 5,951 6,559
----------------------------
$1,008,622 $1,012,171
----------------------------
----------------------------
Saskatchewan
Identifiable Assets
Revenue producing properties $ 179,809 $ 180,792
Mortgages and accounts receivable 36 22
Deferred financing costs 4,494 4,714
Tenants' security deposits 1,088 1,037
----------------------------
$ 185,427 $ 186,565
----------------------------
----------------------------
Ontario
Identifiable Assets
Revenue producing properties $ 215,827 $ 215,175
Mortgages and accounts receivable 229 1,166
Deferred financing costs 2,755 2,954
----------------------------
$ 218,811 $ 219,295
----------------------------
----------------------------
Quebec
Identifiable Assets
Revenue producing properties $ 340,383 $ 229,272
Mortgages and accounts receivable 4,487 4,709
Deferred financing costs 4,246 4,357
----------------------------
$ 349,116 $ 238,338
----------------------------
----------------------------
Total Assets
Identifiable assets $1,761,976 $1,656,369
Unallocated assets(xxx) 27,880 52,121
----------------------------
$1,789,856 $1,708,490
----------------------------
----------------------------
(x) Unallocated revenue includes interest income and other non-
rental income from continuing operations.
(xx) Unallocated expenses include non-rental operating expenses,
administration, financing costs, amortization, income taxes and
other provisions from continuing operations.
(xxx) Unallocated assets include properties held for development,
cash, short-term investments and other assets.
12. SUBSEQUENT EVENTS
On November 6, 2003, the Corporation announced it was reviewing a
proposal for the reorganization of the company to a real estate
investment trust and has engaged a number of financial advisors to
advise the Corporation on the proposed reorganization. The
reorganization is subject to shareholder and regulatory approvals,
as well as approvals by the Corporation's lenders and board of
directors. There is no certainty at this time that the
reorganization will be implemented.
For further information please contact:
Boardwalk Equities Inc.
Sam Kolias,
President and CEO,
(403) 531-9255;
Roberto Geremia,
Senior Vice President,
Finance and Chief Financial Officer,
(403) 531-9255;
Mike Hough,
Senior Vice President,
(416) 364-0849;
Paul Moon,
Director of Corporate Communications,
(403) 206-6808
