TSX SYMBOL: BEI.UN August 10, 2007
Boardwalk REIT Announces Solid Second Quarter 2007 Financial Results with Funds From
Operations per Unit Up 32.5% and Distributable Income per Unit Up 32.5% YOY for the Second
Quarter and an Upward Revision in 2007 Reported Financial Guidance. Boardwalk REIT also
announces the application to commence a Normal Course Issuer Bid.
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CALGARY, Aug. 10 /CNW/ - Boardwalk Real Estate Investment Trust ("BEI.UN"
- TSX) Boardwalk Real Estate Investment Trust ("Boardwalk REIT" or the
"Trust") today announced solid financial results for the second quarter of
2007 with FFO per Unit up 32.5% and DI per Unit up 32.5% YOY and an upward
revision in 2007 reported financial guidance.
For the second quarter ended June 30, 2007, the Trust reported Funds From
Operations(1) ("FFO") of $29.8 million and FFO per unit of $0.53 on a diluted
basis, compared to FFO of $22.2 million and FFO per unit of $0.40 for the same
period last year. Distributable Income ("DI") for the quarter was
$30.0 million and DI per Unit was $0.53 on a diluted basis, compared to
$22.7 million and $0.40 per unit, respectively, for the same period last year.
<<
Highlights of the Trust's Second Quarter 2007 financial results include:
- Rental revenues of $92.4 million, an increase of 18.1% compared to
$78.2 million for the three-month period ended June 30, 2006.
- Net operating income (NOI) of $58.5 million, representing a
24.2% increase from $47.1 million in the same period last year.
- Funds from operations (FFO) of $29.8 million, an increase of
33.9% compared to $22.2 million for the three-month period ended
June 30, 2006.
- FFO per unit was $0.53 on a diluted basis, up 32.5% compared to
$0.40 in the same period last year.
- Distributable Income (DI) was $0.53 per unit, up 32.5% from $0.40 for
the three months ended June 30, 2006.
- Net earnings for the quarter were down $102 million from prior year,
the direct result of a one-time deferred non-cash tax charge of
$111 million relating to the Royal Assent of Bill C-52 on
June 22, 2007.
>>
Commenting on the Trust's Q2 2007 results, Sam Kolias, C.E.O., said: "We
are pleased to report on another positive quarter for the Trust. As predicted,
demand for our rental units remained strong through the second quarter of
2007. Economic expansion continues to drive demand for rental accommodation in
our British Columbia, Alberta and Saskatchewan markets, resulting in downward
pressure on vacancy rates."
"Our Western markets, which make up in excess of 69% of our total
apartment portfolio, continue to see strong revenue growth, with the largest
growth in our Edmonton, Calgary and Saskatchewan markets. Average market rents
were up approximately $107 in Edmonton at the end of Q2 over Q1 of 2007;
$54 in Saskatoon; and $31 in Regina. In Calgary, the rental market remains
strong, though early indicators suggest market fundamentals are moderating
slightly. Still, market rents were up approximately $37 in Calgary as at the
end of Q2 over Q1."
Roberto Geremia, President, added: "The slight moderating seen over the
past quarter in Calgary reinforces the effectiveness of a free market, as
price adjustments over the past months are resulting in a new equilibrium
between supply and demand within the market. Edmonton, where current rental
market fundamentals mirror the fundamentals Calgary experienced approximately
12 to 18 months ago, may experience a similar cycle of market rebalancing over
the coming months."
"For the majority of our Customers, salary growth through significant
wage inflation has offset hardship from rising rents. However, we recognize
that market rental rate increases may be difficult to bear for a select group
of the lower income earning population. Therefore, we remain committed to our
Customer-focused operating policies and initiatives, which help provide
affordable housing to those in financial need. Because the rental market is
cyclical, our self-imposed, Customer-focused policies, including our internal
'rent protection' policy and rental subsidy program, make good business sense
for all landlords. It is in our best interests to proactively ensure the
rental market remains healthy and viable over the long term."
<<
Operational Highlights
- The average vacancy rate across the Trust's portfolio for the second
quarter of 2007 was 4.16%, down from 4.39% in the first quarter of
2007, but up from 3.87% for the second quarter of 2006.
- The average monthly rent realized in the second quarter of 2007 was
$865 per rental unit, up $89 from $776 per rental unit for the same
period last year.
- The average market rent for the Trust's properties at the end of June
2007 was an estimated $1064 per rental unit per month, which compares
to an average in-place monthly rent per occupied unit of $903 for the
three-month period ended June 30, 2007. This translates to an
estimated 'loss-to-lease' of approximately $60.8 million on an
annualized basis, or $1.08 per outstanding Trust Unit, given existing
occupancy levels.
>>
More detail on our operations will be found in our conference call
presentation to be posted on our web site today at
www.boardwalkreit.com/FinancialReports/ The conference call audio for this
presentation can also be found on our web site at
www.boardwalkreit.com/FinancialReports/ following the call.
Same-Property Results
Boardwalk REIT continued to show solid performance in its stabilized
properties (defined as properties owned for over 24 months). The
"same-property" results for the Trust's stabilized portfolio for the
three-month period ended June 30, 2007 showed rental revenue growth of 12.4%
on a year-over-year basis. Operating expenses increased 1.3%, resulting in an
increase in NOI of 19.3% compared to the same period last year. A total of
33,014 units, representing approximately 92% of Boardwalk REIT's total
portfolio, were classified as stabilized as at June 30, 2007.
<<
Same-Property Results - Stabilized Portfolio
Net % of
Operating Operating Stabi-
No. of Revenue Expense Income lized
Jun 30 2007 - 3 M Units Growth Growth Growth NOI
Calgary 4,973 24.0% 2.1% 34.2% 21%
Edmonton 10,369 18.8% 9.1% 24.1% 34%
Other Alberta 1,680 15.3% 8.3% 18.3% 6%
British Columbia 633 10.6% 11.2% 10.3% 2%
Saskatchewan 4,660 8.0% -10.9% 24.1% 10%
Quebec 6,434 2.4% -1.4% 5.1% 18%
Ontario 4,265 0.2% -2.1% 2.5% 9%
------------------------------------------------
33,014 12.4% 1.3% 19.3% 100%
------------------------------------------------
------------------------------------------------
Net % of
Operating Operating Stabi-
No. of Revenue Expense Income lized
Jun 30 2007 - 6 M Units Growth Growth Growth NOI
Calgary 4,973 22.6% 6.9% 29.9% 21%
Edmonton 10,369 17.3% 8.7% 22.4% 34%
Other Alberta 1,680 16.7% 8.7% 20.5% 7%
British Columbia 633 8.4% 7.0% 9.2% 2%
Saskatchewan 4,660 7.0% -1.5% 14.6% 10%
Quebec 6,434 2.2% -1.7% 5.4% 18%
Ontario 4,265 0.1% 0.3% -0.1% 8%
------------------------------------------------
33,014 11.5% 3.3% 17.0% 100%
------------------------------------------------
------------------------------------------------
>>
Commenting on Boardwalk REIT's same-property results, Sam Kolias, CEO,
said, "In the second quarter, we are pleased to see revenue growth
accelerating more quickly than expense increases on a stabilized property
basis for the seventh straight quarter. Our portfolio operating expenses rose
quite minimally this quarter, resulting in strong NOI growth on both a
quarter-over-quarter and half-year basis."
<<
Real Estate Acquisition/Disposition Activity
Closed Acquisitions
No. of
Building Name City Units Type Price
-------------------------------------------------------------------------
Springwood Place
Apartments Spruce Grove 160 Low Rise $ 16,000,000
Prairie Sunrise High Rise &
Portfolio Grande Prairie 275 Walk up $ 40,000,000
West Edmonton High Rise,
Village Edmonton 1176 Walk up, Town $ 143,500,000
St. Charles
Place &
Parkview Manor Edmonton 51 Walk up $ 4,150,000
Ridgemont
Apartments Coquitlam 41 Walk up $ 3,700,000
-------------------------------------------------------------------------
Total 1,703 $ 207,350,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Year 1 Year 2
Building Name Cap Rate Cap Rate $/unit $/sq ft Date Closed
-------------------------------------------------------------------------
Springwood Place
Apartments 5.25% 5.76% $100,000 $130 May 28, 2007
Prairie Sunrise
Portfolio 4.74% 6.30% $145,455 $175 March 14, 2007
West Edmonton
Village 5.47% 6.61% $122,024 $126 February 28, 2007
St. Charles
Place &
Parkview Manor 4.52% 5.52% $ 81,373 $104 January 26, 2007
Ridgemont
Apartments 5.03% 5.66% $ 90,244 $142 January 25, 2007
-------------------------------------------------------------------------
Total 5.29% 6.45% $121,756 $136
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Dispositions
No. of
Building Name City Units Type Price
-------------------------------------------------------------------------
St. Charles
Place &
Parkview Manor Edmonton 51 Walk Up $ 5,900,000
-------------------------------------------------------------------------
Total 51 $ 5,900,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Year 1 Year 2
Building Name Cap Rate Cap Rate $/unit $/sq ft Date Closed
-------------------------------------------------------------------------
St. Charles
Place &
Parkview Manor 3.20% 3.67% $115,686 $148 April 30, 2007
-------------------------------------------------------------------------
Total 3.20% 3.67% $115,686 $148
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
Commenting on the Trust's property acquisitions and dispositions, Bill
Chidley, Senior Vice President, Corporate Development, said: "To date, we have
closed on 1,703 apartment units in 2007. All of these acquisitions are located
in strong Western markets. At this point, we feel it appropriate to increase
our acquisition guidance from the previously announced 1,000 - 2,000 range to
a new target range of 2,000 - 3,000 residential units for the 2007 fiscal
year."
"Our highly skilled Acquisitions department continues to work proactively
to find, underwrite and negotiate superior acquisition opportunities across
the country. Currently, our primary focus is in the strong Western Canadian
market, most particularly the Lower Mainland and Victoria areas in British
Columbia, the entire Province of Alberta, and the major centres in
Saskatchewan. Despite this predominantly Western focus, we also remain, as
always, poised to act quickly on any particularly attractive one-time deals in
the East. As we have mentioned in the past, we believe it is still too early
in the market cycle to consider the Greater Toronto Area in a meaningful way.
Boardwalk REIT looks for meaningful rental growth rates in addition to initial
accretion in its acquisitions."
"The acquisition market for multi-family rentals in Canada continues to
be a highly competitive 'seller's market'. We are in discussion on a number of
possible acquisitions; however, we cannot be certain of closing on any of
these transactions."
New Apartment Development
Boardwalk REIT continues to explore the possibility of developing new
rental product in select markets in Western Canada. At this time, we are
focusing on selected properties that feature excess density in Calgary and
Edmonton. We remain committed to economical new rental development and are
currently in the process of density intensification studies in Calgary and
Edmonton. Currently, we are studying five properties: Radisson Village, Russet
Court and Spruce Ridge Estates in Calgary, and West Edmonton Village and
Viking Arms in Edmonton.
We continue to work with third parties to help us more fully explore this
opportunity. Though we are excited by this opportunity, it is important to
note that this current development opportunity represents much less potential
financial gain than our current mature portfolio.
Continued Financial Strength
The Trust maintained its solid financial position through the second
quarter of 2007. Boardwalk REIT's total principal mortgage and debt
outstanding was $1.76 billion as at June 30, 2007, as compared to
$1.53 billion as at June 30, 2006. As at June 30, 2007, the Trust's total debt
had an average maturity of 2.9 years with a weighted average interest rate of
5.25%. The Trust's total debt-to-total market capitalization ratio was 38.3%
as at June 30, 2007.
The Trust, as at June 30, 2007, had a $200 million secured, undrawn
acquisition and operating facility available for future investment
opportunities. In addition, the Trust has been proactive in managing its debt
portfolio and, as such, has already locked in over $132 million in mortgages
maturing in the last half of the 2007 fiscal year at rates well below both the
maturing and existing market rates.
The Trust's interest coverage ratio, excluding gains, for the three-month
period ended June 30, 2007 was 2.37 times, compared to 2.13 times in the same
period last year.
Normal Course Issuer Bid
Recently, the public markets have experienced downward pressure and a
high level of volatility. Given this situation and the recent pull back in our
Trust Unit price, the Board of Trustees has given Management the approval to
commence a Normal Course Issuer Bid. The Bid, once approved by existing
securities bodies, will allow the Trust to purchase up to 10% of its existing
outstanding public float, or 4,265,085 million Trust Units, through the
facilities of the Toronto Stock Exchange. Boardwalk REIT currently has
51,989,813 issued and outstanding trust units. The average daily trading
volume for the six calendar months prior to the date hereof was 166,116 trust
units. The Bid, if approved, is expected to commence on August 17, 2007 and
will terminate one year later, or at such earlier time as the Bid is complete.
Boardwalk REIT believes that the current and recent market prices of its
trust units do not reflect their underlying value. Boardwalk REIT's management
is initiating this program as it feels that, at current market prices, an
investment in Boardwalk REIT's own high quality portfolio will deliver strong
returns for unitholders and represents an effective use of its capital and
steadily increasing cash flows. At the same time, Boardwalk REIT plans to
continue its property acquisition and capital improvement programs. Boardwalk
REIT will purchase the trust units for cancellation with the intention of
increasing the proportionate interest of all remaining unitholders.
Commenting on the Bid, William Wong, CFO, stated: "We will be purchasing
Trust Units in the public securities market in accordance with stipulations
set forth by the securities regulators. It is our belief that one of the best
investments available today is to purchase our real estate at a significant
discount to both net asset value and replacement cost."
Outlook and 2007 Financial Guidance
Commenting on the outlook for the Trust, Roberto Geremia, President,
said, "As is customary, the Trust has reviewed its key assumptions in
providing financial guidance for the current fiscal year. Based on this
review, our continued belief in the strength of the rental markets in Western
Canada, and the fact that we have now reported on two of the four fiscal 2007
quarters, we again feel it is appropriate to make adjustments to our 2007
financial guidance. We are increasing as well as adjusting the reported range
for both FFO and DI Guidance. For fiscal 2007, we are expecting FFO to be
between $1.95 to $2.04, as compared to the previous guidance of $1.90 to
$2.02. For DI, we now anticipate a range of between $1.97 to $2.05, as
compared to the previous guidance of $1.92 to $2.04. To achieve these guidance
revisions, we are also increasing our expected stabilized property NOI growth
to 10% from the previous 8.5%, as well as increasing our acquisition target,
as previously mentioned."
August 2007 Monthly Distribution
The Trust has declared its August, 2007 distribution in the amount of
13.33 cents per unit ($1.60 annualized). The August distribution will be
payable on September 17, 2007 to unitholders of record on August 31, 2007. To
encourage participation and reward unitholders, investors registered in the
Distribution Reinvestment Plan ("DRIP") will continue to receive a "bonus"
distribution of additional Trust Units representing 3% of the amount of their
cash distributions reinvested pursuant to the Plan. A full copy of the DRIP
can be found on Trust's website at www.boardwalkREIT.com.
Supplementary Information
Boardwalk REIT produces Quarterly Supplemental Information that provides
detailed information regarding the Trust's activities during the quarter. The
second quarter 2007 Supplemental Information is available on our investor
website at www.boardwalkreit.com.
Teleconference on Second Quarter Financial Results
We invite you to participate in the teleconference that will be held to
discuss these results this same morning at 11:00 am EST. Senior management
will speak to the second quarter financial results and provide a corporate
update. Presentation materials will be made available on our investor website
at www.boardwalkreit.com prior to the call.
Participation & Registration: Please RSVP to Investor Relations at
403-531-9255 or by email to investor@bwalk.com.
Teleconference: The telephone numbers for the conference are 416-644-3415
(within Toronto) or toll-free 1-800-732-9303 (outside Toronto).
Webcast: Investors will be able to listen to the call and view our slide
presentation over the Internet by visiting http://www.boardwalkreit.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
www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1911140
Replay: An audio recording of the teleconference will be available from
1:30 pm ET on Friday, August 10, 2007 until 11:59 pm ET on Friday,
August 17th, 2007. You can access it by dialing 416-640-1917 and using the
passcode 21238371 followed by the number sign. An audio archive will also be
available on our website (http://www.boardwalkreit.com/) approximately two
hours after the conference call.
Corporate Profile
Boardwalk REIT is an open-ended real estate investment trust formed to
acquire all of the assets and undertakings of Boardwalk Equities Inc.
Boardwalk REIT's principal objectives are to provide its unitholders with
monthly cash distributions, partially on a Canadian income tax-deferred basis,
and to increase the value of its units through the effective management of its
residential multi-family revenue producing properties and the acquisition of
additional properties. Boardwalk REIT currently owns and operates in excess of
260 properties with approximately 35,800 units totalling approximately 30
million net rentable square feet, and is Canada's largest owner/operator of
multi-family rental communities. Boardwalk REIT's portfolio is concentrated in
the provinces of Alberta, British Columbia, Saskatchewan, Ontario and Quebec.
<<
(1) Funds From Operations ("FFO") is a generally accepted measure of
operating performance of real estate investment trusts and companies;
however, it is a non-GAAP measure. The Trust calculates FFO by taking
net earnings after discontinued operations, adjusting for gains or
losses on disposal of discontinued operation assets and extraordinary
items, and adding non-cash expenses including future income taxes and
amortization. The determination of this amount may differ from that
of other real estate investment trusts and companies. Distributable
Income ("DI") is calculated based on the definition as set out in the
Trust's declaration of trust and is computed by taking FFO and adding
back amortization on any deferred financing charges incurred prior to
May 3, 2004 as well as adjusting for any discounts or premiums
relating to the amortization of mark-to-market debt adjustment
incurred subsequent to the real estate investment trust conversion
date of May 3, 2004.
>>
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements relating to our
operations and the environment in which we operate, which are based on our
expectations, estimates, forecast and projections, which we believe are
reasonable as of the current date . These statements are not guarantees of
future performance and involve risks and uncertainties that are difficult to
control or predict. For more exhaustive information on these risks and
uncertainties you should refer to our most recently filed annual information
form which is available at www.sedar.com. Actual outcomes and results may
differ materially from those expressed in these forward-looking statements.
Readers, therefore, should not place undue reliance on any such
forward-looking statements. Further, a forward-looking statement speaks only
as of the date on which such statement is made and should not be relied upon
as of any other date. While we may elect to, we undertake no obligation to
publicly update any such statement to reflect new information or the
occurrence of future events or circumstances at any particular time.
<<
CONSOLIDATED BALANCE SHEETS
(CDN$ THOUSANDS)
As at June 30, December 31,
2007 2006
-------------------------
(Unaudited) (Audited)
Assets
Revenue producing properties (NOTE 4) $ 2,021,256 $ 1,830,210
Other assets (NOTE 5) 18,149 13,873
Future income taxes (NOTE 11) - 316
Mortgages and accounts receivable 4,127 4,388
Segregated tenants' security deposits 12,171 9,998
Cash 1,192 -
Discontinued operations (NOTE 6) 13,047 11,675
-------------------------------------------------------------------------
$ 2,069,942 $ 1,870,460
-------------------------
-------------------------
Liabilities
Mortgages payable (NOTE 3) $ 1,586,465 $ 1,374,641
Debentures (NOTES 3and 7) 118,601 118,448
Accounts payable and accrued liabilities 45,320 35,423
Refundable tenants' security deposits and other 15,451 13,102
Future income taxes (NOTES 3 and 11) 111,081
Bank indebtedness - 4,042
Discontinued operations (NOTE 6) 5,866 5,937
-------------------------------------------------------------------------
$ 1,882,784 $ 1,551,593
-------------------------
Unitholders' Equity
Unitholders' equity $ 187,158 $ 318,867
-------------------------------------------------------------------------
$ 2,069,942 $ 1,870,460
-------------------------
-------------------------
Commitments and contingencies (NOTE 12)
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(CDN$ THOUSANDS, EXCEPT PER UNIT AMOUNTS)
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------------------------------------------------
Revenue
Rental income $ 92,446 $ 78,245 $ 179,758 $ 154,267
---------------------------------------------------
Expenses
Revenue producing
properties:
Operating
expenses 16,160 14,225 31,661 28,035
Utilities 9,291 9,087 22,934 21,875
Utility rebate
(NOTE 12) (9) (6) (933) (1,388)
Property taxes 8,481 7,823 16,745 16,123
Administration 5,291 4,446 10,582 8,845
Financing costs 22,570 20,139 44,239 40,481
Deferred financing
costs amortization
(NOTE 3) 1,094 688 2,369 1,459
Amortization of
capital assets 20,511 18,166 39,767 35,574
-------------------------------------------------------------------------
83,389 74,568 167,364 151,004
---------------------------------------------------
Earnings from
continuing operations
before income taxes 9,057 3,677 12,394 3,263
Large corporations
taxes - (141) - 8
Future income taxes
(recovery) (NOTE 11) 111,630 (122) 111,398 (224)
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations (102,573) 3,940 (99,004) 3,479
Earnings from
discontinued
operations,
net of tax (NOTE 6) 5,073 121 5,134 7,879
-------------------------------------------------------------------------
Net earnings (loss) (97,500) 4,061 (93,870) 11,358
Other comprehensive
income - - - -
---------------------------------------------------
Comprehensive income
(loss) $ (97,500) $ 4,061 $ (93,870) $ 11,358
---------------------------------------------------
---------------------------------------------------
Basic earnings (loss)
per unit (NOTE 10)
- from continuing
operations $ (1.82) $ 0.07 $ (1.75) $ 0.07
- from discontinued
operations 0.09 0.0 0.09 0.14
-------------------------------------------------------------------------
Basic earnings (loss)
per unit $ (1.73) $ 0.07 $ (1.66) $ 0.21
---------------------------------------------------
---------------------------------------------------
Diluted earnings (loss)
per unit (NOTE 10)
- from continuing
operations $ (1.82) $ 0.07 $ (1.75) $ 0.07
- from discontinued
operations 0.09 0.0 0.09 0.14
-------------------------------------------------------------------------
Diluted earnings (loss)
per unit $ (1.73) $ 0.07 $ (1.66) $ 0.21
---------------------------------------------------
---------------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
(CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS)
6 months 6 months
ended ended
June 30, June 30,
2007 2006
(Unaudited) (Unaudited)
-------------------------
Trust units (NOTE 9)
Balance, beginning of period $ 365,744 $ 295,696
Units issued under equity financing, net of
issue costs (136) 63,594
Units issued under distribution reinvestment
plan 4,232 2,485
Restructuring costs - (141)
Deferred unit plan (NOTE 8) 931 -
-------------------------------------------------------------------------
Balance, end of period $ 370,771 $ 361,634
-------------------------
Cumulative earnings
Balance, beginning of period $ 154,917 $ 129,530
Net earnings (loss) for the period (93,870) 11,358
-------------------------------------------------------------------------
Balance, end of period $ 61,047 $ 140,888
-------------------------
Cumulative other comprehensive income
Balance, beginning of period $ - $ -
Other comprehensive income for the period - -
-------------------------------------------------------------------------
Balance, end of period $ - $ -
-------------------------
Cumulative distributions to unitholders
Balance, beginning of period $ (201,794) $ (129,483)
Distributions declared to unitholders (NOTE 10) (42,866) (34,792)
-------------------------------------------------------------------------
Balance, end of period $ (244,660) $ (164,275)
-------------------------
Total unitholders' equity $ 187,158 $ 338,247
-------------------------
-------------------------
Units issued and outstanding 56,451,371 56,248,349
-------------------------
-------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CDN$ THOUSANDS)
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------------------------------------------------
Operating activities
Net earnings (loss) $ (97,500) $ 4,061 $ (93,870) $ 11,358
Earnings from
discontinued
operations, net
of tax (5,073) (121) (5,134) (7,879)
Future income taxes
(recovery) 111,630 (122) 111,398 (224)
Amortization of
capital assets 20,511 18,166 39,767 35,574
-------------------------------------------------------------------------
29,567 21,984 52,161 38,829
Funds from
discontinued
operations 194 250 356 607
Net change in
operating working
capital 8,555 (857) 8,401 (1,705)
-------------------------------------------------------------------------
Total operating cash
flows 38,316 21,377 60,918 37,731
---------------------------------------------------
Financing activities
Issue of trust units
(net of issue costs)
(NOTE 9) 1,782 1,480 4,095 65,938
Distributions paid (22,005) (17,705) (42,859) (34,474)
Financing of revenue
producing properties 72,545 9,458 318,685 12,746
Repayment of debt on
revenue producing
properties (22,536) (7,850) (132,237) (25,626)
Deferred financing
costs incurred
(net of amortization) (1,347) (413) (5,243) (199)
-------------------------------------------------------------------------
28,439 (15,030) 142,441 18,385
---------------------------------------------------
Investing activities
Purchases of revenue
producing properties
(NOTE 4) (16,000) (18,500) (176,213) (60,795)
Improvements to
revenue producing
properties (19,146) (11,593) (33,494) (18,572)
Net cash proceeds
from sale of
properties 12,275 - 12,275 20,274
Additions to
corporate
technology assets (358) (321) (693) (628)
-------------------------------------------------------------------------
(23,229) (30,414) (198,125) (59,721)
---------------------------------------------------
Net increase (decrease)
in cash and cash
equivalents balance 43,526 (24,067) 5,234 (3,605)
Cash and cash
equivalents (bank
indebtedness),
beginning of period (42,334) 31,607 (4,042) 11,145
-------------------------------------------------------------------------
Cash and cash
equivalents, end of
period $ 1,192 $ 7,540 $ 1,192 $ 7,540
---------------------------------------------------
---------------------------------------------------
Supplementary cash
flow information:
Capital taxes paid $ - $ 140 $ - $ 350
Interest paid $ 15,118 $ 18,668 $ 31,291 $ 40,658
---------------------------------------------------
---------------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 2007
(TABULAR AMOUNTS IN CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS AND PER UNIT
AMOUNTS UNLESS OTHERWISE STATED)
(UNAUDITED)
1. ORGANIZATION OF TRUST
Boardwalk Real Estate Investment Trust ("Boardwalk REIT" or the
"Trust") is an unincorporated, open-ended real estate investment
trust created pursuant to the Declaration of Trust, dated January 9,
2004 and as amended and restated on May 3, 2004, May 10, 2006 and
May 10, 2007, under the laws of the Province of Alberta. Boardwalk
REIT was created to invest in revenue producing multi-family
residential properties or interests within Canada, initially through
the acquisition of operations of Boardwalk Equities Inc. (the
"Corporation"), which was acquired on May 3, 2004.
2. BASIS OF PRESENTATION
These unaudited interim consolidated financial statements have been
prepared in accordance with the recommendations of the handbook of
the Canadian Institute of Chartered Accountants ("CICA Handbook") and
are consistent with those used in the audited consolidated financial
statements as at and for the year ended December 31, 2006, except as
disclosed in Note 3 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 six
months ended June 30, 2007 are not necessarily indicative of the
results that may be expected for the full year ending December 31,
2007 due to seasonal variations in utility costs and other factors.
Historically, Boardwalk REIT has experienced higher utility expenses
in the first quarter as a result of the winter months, which create
variations in the quarterly results.
Certain comparative figures have been reclassified to conform to the
presentation of the current period, or as a result of accounting
changes.
3. ACCOUNTING CHANGES
On January 1, 2007, the Trust adopted five new accounting standards
issued by the CICA. These standards are to be applied on a
retroactive basis without restatement to prior periods. Any
adjustments as a result of adopting these new standards were
recognized by restating the balance of opening unitholders' equity.
Comparative periods are not permitted to be restated. These five
standards are outlined below:
a) Section 1506 - Accounting Changes
b) Section 1530 - Comprehensive Income
c) Section 3855 - Financial Instruments - Recognition and Measurement
d) Section 3861 - Financial Instruments - Disclosure and Presentation
e) Section 3865 - Hedges
Section 1506 - Accounting Changes prescribes the criteria for
changing accounting policies, together with the accounting treatment
and disclosure of changes in accounting policies, changes in
accounting estimates and correction of errors in order to enhance the
relevance, reliability and comparability of financial statements.
Section 1530 - Comprehensive Income is comprised of net earnings and
other comprehensive income ("OCI"), which represents changes in
unitholders' equity during a period arising from transactions and
other events with non-owner sources. OCI generally would include
unrealized gains and losses on financial assets classified as
available-for-sale, unrealized foreign currency translation
adjustments arising from self-sustaining foreign operations and
changes in the fair value of the effective portion of cash flow
hedging instruments.
Section 3855 - Financial Instruments - Recognition and Measurement
establishes standards for recognizing and measuring financial assets,
financial liabilities and non-financial derivatives. All financial
instruments are required to be measured at fair value on initial
recognition, except for certain related-party transactions.
Measurement in subsequent periods depends on whether the financial
instrument has been classified as held-for-trading, available-for-
sale, held-to-maturity, loans and receivables, or other liabilities.
Financial assets and financial liabilities classified as held-for-
trading are required to be measured at fair value with gains and
losses recognized in net earnings. Financial assets classified as
held-to-maturity, loans and receivables and financial liabilities
(other than those held-for-trading) are required to be measured at
amortized cost using the effective interest method of amortization.
Available-for-sale financial assets are required to be measured at
fair value with unrealized gains and losses recognized in OCI.
Investments in equity instruments classified as available-for-sale
that do not have a quoted market price in an active market should be
measured at cost. Derivative instruments must be recorded on the
balance sheet at fair value including those derivatives that are
embedded in a financial instrument or other contract but are not
closely related to the host financial instrument or contract,
respectively. Changes in the fair values of derivative instruments
are required to be recognized in net earnings, except for derivatives
that are designated as a cash flow hedge, in which case the fair
value change for the effective portion of such hedge relationship is
required to be recognized in OCI. The standard permits us to
designate any financial instrument whose fair value can be reliably
measured as held-for-trading on initial recognition or adoption of
the standard, even if that instrument would not otherwise satisfy the
definition of held-for-trading set out in Section 3855. The standard
specifically excludes Section 3065, Leases, from the definition of
financial instruments, except for derivatives that are embedded in a
lease contract. Other significant accounting implications arising on
adoption of the standard include the initial recognition of certain
financial guarantees at fair value on the balance sheet and the use
of the effective interest method of amortization for any transaction
costs or fees, premiums or discounts earned or incurred for financial
instruments measured at amortized cost.
Section 3861 - Financial Instruments - Disclosure and Presentation
establishes standards for presentation of financial instruments and
non-financial derivatives, and identifies the information that should
be disclosed about them. The presentation paragraphs deal with the
classification of financial instruments, from the perspective of the
issuer, between liabilities and equity, the classification of related
interest, dividends, losses and gains, and the circumstances in which
financial assets and financial liabilities are offset. The disclosure
paragraphs deal with information about factors that affect the
amount, timing and certainty of an entity's future cash flows
relating to financial instruments. This Section also deals with
disclosure of information about the nature and extent of an entity's
use of financial instruments, the business purposes they serve, the
risks associated with them and management's policies for controlling
those risks.
Section 3865 - Hedges specifies the criteria under which hedge
accounting can be applied and how hedge accounting should be executed
for each of the permitted hedging strategies: fair value hedges, cash
flow hedges and hedges of a foreign currency exposure of a net
investment in a self-sustaining foreign operation. In a fair value
hedging relationship, the carrying value of the hedged item will be
adjusted by gains or losses attributable to the hedged risk and
recognized in net earnings. The changes in the fair value of the
hedged item, to the extent that the hedging relationship is effective
as defined by the standard ("effective"), will be offset by changes
in the fair value of the hedging derivative. In a cash flow hedging
relationship, the effective portion of the change in the fair value
of the hedging derivative will be recognized in OCI. The ineffective
portion as defined by the standard ("ineffective") will be recognized
in net earnings. The amounts recognized in OCI will be reclassified
to net earnings in those periods in which net earnings is affected by
the variability in the cash flows of the hedged item. In hedging a
foreign currency exposure of a net investment in a self-sustaining
foreign operation, the effective portion of foreign exchange gains
and losses on the hedging instruments will be recognized in OCI and
the ineffective portion is recognized in net earnings. Deferred gains
or losses on the hedging instrument with respect to hedging
relationships that were discontinued prior to the transition date but
qualify for hedge accounting under the new standards will be
recognized in the carrying amount of the hedged item and amortized to
net earnings over the remaining term of the hedged item for fair
value hedges, and for cash flow hedges will be recognized in OCI and
reclassified to net earnings in the same period during which the
hedged item affects net earnings. However, for discontinued hedging
relationships that do not qualify for hedge accounting under the new
standards, the deferred gains and losses will be recognized in the
opening balance of retained earnings on transition.
Impact of Adoption of Sections 1506, 1530, 3855, 3861 and 3865
Our consolidated financial statements now include consolidated
statements of earnings and comprehensive income while the cumulative
amount of other comprehensive income has been included as a separate
section of unitholders' equity.
Boardwalk REIT has also adopted the effective interest rate method
for calculating the amortized cost of its financial liabilities and
of allocating the financing charges, including transaction costs,
over the relevant reporting periods. Any adjustment as a result of
the adoption of Section 3855 is recognized by restating the balance
of opening unitholders' equity. Comparative periods are not permitted
to be restated. For the current and prior periods, all unamortized
transaction costs (previously designated as deferred financing costs
and mark-to-market adjustment of debt) are now netted against the
respective financial liability. The table below outlines the
transitional effect of adopting the new accounting standards on
financial instruments:
June 30, December 31,
2007 2006
-------------------------
Mortgages Payable
Principal outstanding $ 1,633,611 $ 1,414,537
Unamortized deferred financing costs (48,648) (41,626)
Unamortized mark-to-market adjustment 1,502 1,730
---------------------------------------------------------------------
$ 1,586,465 $ 1,374,641
-------------------------
-------------------------
Debentures
Principal outstanding $ 120,000 $ 120,000
Unamortized deferred financing costs (1,399) (1,552)
---------------------------------------------------------------------
$ 118,601 $ 118,448
-------------------------
-------------------------
There were no material impacts to the consolidated financial
statements on adoption of Section 3865 by the Trust.
Bill C-52
On June 22, 2007, Bill C-52 received Royal Assent in Canada. As a
result of this, under Generally Accepted Accounting Principles in
Canada, once a bill is enacted, it is a requirement to record the
income tax implications effective on that date. In accordance with
Bill C-52, the assumption being made is that, effective
January 1, 2011, Boardwalk REIT will no longer qualify as a Real
Estate Investment Trust ("REIT") in accordance with the definition
contained in that legislation, and will remain within certain "normal
growth" limits such that it will be subject to income tax pursuant to
this new legislation.
Impact of Bill C-52
The impact of our interpretation of Bill C-52 on Boardwalk REIT was
that, based on a detailed review of the legislation, at this time it
may be interpreted that the Trust does not qualify as a REIT, which
would be exempt from the specified investment flow-through ("SIFT")
rules, and as such has recorded an estimate of its the future income
tax liability at June 30, 2007 based on it being subject to the tax
prescribed by the SIFT rules on January 1, 2011. The result is that
the Trust is recording a future income tax liability at June 30, 2007
in the amount of $111.1 million. At a future time, once it has been
deemed that the Trust would be in compliance with the SIFT rules, the
amount of the adjustment will be reversed. Although the adjustment to
earnings and cumulative earnings at June 30, 2007 is significant, it
is not large enough to affect any existing debt covenants currently
in place, including those stipulated for Boardwalk REIT's unsecured
debentures. At this time, it is the belief of the Trust that it will
be in compliance with the existing and or amended legislation prior
to the effective date of January 1, 2011.
4. REVENUE PRODUCING PROPERTIES
Acquisitions
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------
Cash paid $ 16,000 $ 18,500 $ 176,213 $ 60,795
Debt assumed - - 31,209 -
---------------------------------------------------------------------
Total purchase
price 16,000 18,500 207,422 60,795
Fair value
adjustments
to debt - - 376 -
---------------------------------------------------------------------
Book value $ 16,000 $ 18,500 $ 207,798 $ 60,795
---------------------------------------------------
---------------------------------------------------
Allocation of book
value to revenue
producing
properties $ 15,528 $ 17,797 $ 201,400 $ 58,562
Allocation of
book value to
other assets 472 703 6,398 2,233
---------------------------------------------------------------------
$ 16,000 $ 18,500 $ 207,798 $ 60,795
---------------------------------------------------
---------------------------------------------------
Multi-family
units acquired 160 280 1,703 840
---------------------------------------------------
---------------------------------------------------
Dispositions
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------
Cash received $ 12,275 $ - $ 12,275 $ 20,274
Cost of
dispositions 125 - 125 426
---------------------------------------------------------------------
Total proceeds 12,400 - 12,400 20,700
Net book value 7,590 - 7,590 13,173
---------------------------------------------------------------------
Gain on
dispositions $ 4,810 $ - $ 4,810 $ 7,527
---------------------------------------------------
---------------------------------------------------
Multi-family
units sold 72 - 72 194
---------------------------------------------------
---------------------------------------------------
5. OTHER ASSETS
As at June 30, December 31,
2007 2006
-------------------------
Corporate technology assets (net of
accumulated amortization) $ 3,467 $ 3,436
Head office building (net of accumulated
amortization) 2,367 2,329
Deposits on potential property acquisitions - 814
Prepaid parts and supplies 2,562 2,097
Lease goodwill and customer relationship
intangibles (net of accumulated
amortization) 4,596 1,271
Prepaid property taxes 2,952 1,193
Prepaid and other 2,205 2,733
---------------------------------------------------------------------
$ 18,149 $ 13,873
-------------------------
-------------------------
Accumulated amortization for corporate technology assets and head
office building at June 30, 2007 were $12.8 million and $1.0 million,
respectively (December 31, 2006 - $12.1 million and $1.0 million,
respectively). Accumulated amortization for lease goodwill and
customer relationship intangibles at June 30, 2007 was $10.9 million
(December 31, 2006 - $7.9 million)
6. DISCONTINUED OPERATIONS
During the second quarter of 2007, the Trust initiated a plan to sell
a property totaling 108 units in Edmonton, Alberta. The property is
available for immediate sale in its present condition, a buyer has
been located and the sale is probable and expected to be completed
within the fiscal year.
During the first quarter of 2007, the Trust acquired a property in
Edmonton, Alberta consisting of two buildings totaling 51 apartment
units. Prior to the closing of the acquisition, the Trust received an
unsolicited offer to sell this property to an unrelated third party.
After a detailed review of the offer, the Trust agreed to the sale of
this property. The property was, therefore, classified as
discontinued operations upon acquisition.
During the end of the third quarter of 2006, a revenue producing
property consisting of 90 units in Calgary was classified as
discontinued operations as a result of the Trust initiating an active
program to dispose of this property. This property is being developed
into condominium units for sale at a price that is reasonable in
relation to its current fair value. This Calgary property formed part
of our Alberta segment in our segmented information disclosure.
The following tables set forth the results of operations as well as
the assets and liabilities associated with the discontinued
operations.
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------
Revenue
Rental income $ 296 $ 493 $ 742 $ 1,193
---------------------------------------------------------------------
Expenses
Revenue producing
properties:
Operating
expenses 56 83 183 206
Utilities - 50 48 112
Utility rebate - - (5) (12)
Property taxes 24 38 67 100
Administration 17 7 70 22
Financing costs - 60 13 148
Deferred
financing
cost
amortization 5 5 10 10
Amortization of
capital assets (69) 129 32 255
---------------------------------------------------------------------
33 372 418 841
---------------------------------------------------
263 121 324 352
Gain on
dispositions 4,810 - 4,810 7,527
---------------------------------------------------------------------
Earnings from
discontinued
operations $ 5,073 $ 121 $ 5,134 $ 7,879
---------------------------------------------------
---------------------------------------------------
June 30, December 31,
2007 2006
-------------------------
Discontinued Assets
Revenue producing properties held
for sale $ 6,331 $ 6,219
Properties held for redevelopment 6,716 5,456
---------------------------------------------------------------------
Total $ 13,047 $ 11,675
-------------------------
-------------------------
Discontinued Liabilities
Mortgages payable on properties held
for sale $ 5,866 $ 5,937
-------------------------
-------------------------
7. DEBENTURES
On January 21, 2005, Boardwalk REIT completed the issuance of
unsecured debentures in a public offering in the aggregate amount of
$120 million. The debentures are rated "BBB" with a stable trend by
Dominion Bond Rating Services, carry a coupon rate of 5.31% and will
mature on January 23, 2012. Net proceeds of approximately
$119 million were used to fund acquisitions, repay operating lines of
credit and for general trust purposes. In conjunction with the
debenture issue, the Trust also entered into a bond forward contract
to hedge the risk of interest rate fluctuations prior to the final
pricing of the debenture. The bond forward contract was settled when
the debentures were issued for the settlement amount of $0.7 million.
The settlement amount will be amortized over the term of the
unsecured debentures. At June 30, 2007 the Trust was in compliance
with all the covenants reported in the debenture.
8. DEFERRED UNIT PLAN
During 2006, the Trust implemented a deferred unit plan. The plan
entitles trustees and officers, at the participant's option, to
receive deferred units in consideration for trustee fees or executive
bonuses, respectively, with the Trust matching the number of units
received. The deferred units vest 50% on the third anniversary and
25% on each of the fourth and fifth anniversaries, subject to
provisions for earlier vesting in certain events. The deferred units
earn additional deferred units for the distributions that would
otherwise have been paid on the deferred units (i.e., had they
instead been issued as Trust Units on the date of grant). Once
vested, participants are entitled, at their option, to receive an
equivalent number of Trust Units or the equivalent value in cash of
the vested deferred units and the corresponding additional deferred
units. The deferred unit plan was approved by unitholders on
May 10, 2006. At the end of June 30, 2007, total compensation costs
of $1.5 million were recognized in income related to employee awards
under the deferred unit plan.
The status of the outstanding deferred units is as follows:
Summary of Deferred Unit Plan Outstanding Vested
Deferred units granted 72,746 -
Additional deferred units earned on
unvested units 1,000 -
---------------------------------------------------------------------
December 31, 2006 73,746 -
Deferred units granted 20,668 -
Additional deferred units earned on
unvested units 1,495 -
---------------------------------------------------------------------
June 30, 2007 95,909 -
---------------------------------------------------------------------
---------------------------------------------------------------------
9. UNITHOLDERS' CAPITAL
The Plan of Arrangement (the "Arrangement") to convert Boardwalk
Equities Inc. from a share corporation to a real estate investment
trust was completed on May 3, 2004. On conversion of Boardwalk
Equities Inc. to a trust, Boardwalk Equities Inc. incurred
$10.3 million in restructuring costs. Under the Arrangement, the
former shareholders of Boardwalk Equities Inc. received Boardwalk
REIT units or Class B Limited Partnership ("LP Class B") units of a
controlled limited partnership of the Trust, Boardwalk REIT Limited
Partnership.
The LP Class B units are non-transferable, except under certain
circumstances, but are exchangeable, on a one-for-one basis, into
Boardwalk REIT units at any time at the option of the holder. Prior
to such exchange, distributions will be made on the exchangeable
units in an amount equivalent to the distributions which would have
been made had the units of Boardwalk REIT been issued. Each LP Class
B unit was accompanied by a Special Voting unit, which will entitle
the holder to receive notice of, attend and vote at all meetings of
unitholders. There is no value assigned to the Special Voting units.
The LP Class B units issued are included in the unitholders' capital
contributions on the balance sheet. The changes in unitholders'
capital contribution are as follows:
Summary of Unitholders'
Capital Contributions Units Amount
December 31, 2005 53,224,194 $ 295,696
Units issued under equity financing, net of
issue costs 2,915,000 63,583
Units issued under distribution
reinvestment plan 212,589 5,784
Restructuring costs - (140)
Deferred unit plan - 821
-------------------------
December 31, 2006 56,351,783 $ 365,744
Units issued under distribution
reinvestment plan 99,588 4,232
Issue costs - (136)
Deferred unit plan - 931
-------------------------
June 30, 2007 56,451,371 $ 370,771
-------------------------
-------------------------
The Declaration of Trust authorizes Boardwalk REIT to issue an
unlimited number of units for the consideration and on terms and
conditions established by the Trustees without the approval of any
unitholders. The interests in Boardwalk REIT are represented by two
classes of units: a class described and designated as "REIT Units"
and a class described and designated as "Special Voting Units". The
beneficial interest of the two classes of units is as follows:
(a) REIT Units
REIT Units represent an undivided beneficial interest in Boardwalk
REIT and in distributions made by Boardwalk REIT. The REIT Units are
freely transferable, subject to applicable securities regulatory
requirements. Each REIT Unit entitles the holder to one vote at all
meetings of unitholders. Except as set out under the redemption
rights below, the REIT Units have no conversion, retraction,
redemption or pre-emptive rights.
REIT Units are redeemable at any time, in whole or in part, on demand
by the holders. Upon receipt by Boardwalk REIT of a written
redemption notice and other documents that may be required, all
rights to and under the REIT Units tendered for redemption shall be
surrendered and the holder shall be entitled to receive a price per
REIT Unit equal to the lesser of:
i) 90% of the "market price" of the REIT Units on the principal
market on which the REIT Units are quoted for trading during
the twenty-day period ending on the trading day prior to the
day on which the REIT Units were surrendered to Boardwalk REIT
for redemption; and
ii) 100% of the "closing market price" of the REIT Units on the
principal market on which the REIT Units are quoted for trading
on the redemption date.
(b) Special Voting Units
The Declaration of Trust provides for the issuance of an unlimited
number of Special Voting Units that will be used to provide voting
rights to holders of LP Class B units or other securities that are,
directly or indirectly, exchangeable for REIT Units.
Each Special Voting Unit entitles the holder to the number of votes
at any meeting of unitholders, which is equal to the number of REIT
Units that may be obtained upon surrender of the LP Class B unit to
which the Special Voting Unit relates. The Special Voting Units do
not entitle or give any rights to the holders to receive
distributions or any amount upon liquidation, dissolution or winding-
up of Boardwalk REIT.
The breakdown of trust units of Boardwalk REIT by class is as
follows:
Units Amount
Boardwalk REIT Units 51,976,371
Special Voting Units issued to holders of
LP Class B units 4,475,000
-------------------------
Total trust units 56,451,371 $ 370,771
-------------------------
10. DISTRIBUTABLE INCOME AND PER UNIT INFORMATION
Distributable income per unit
Boardwalk REIT makes distributions to unitholders on a monthly basis
on or about the 15th day of the following month. The reported
distributable income is defined under the Trust's Declaration of
Trust ("DOT"). Under the DOT, as amended and restated, the Trust is
required to distribute, at a minimum, its reported taxable income.
The reconciliation of distributable income and per unit information
begins with total operating cash flows calculated in accordance with
Canadian generally accepted accounting principles and as defined in
the Declaration of Trust for Boardwalk REIT. However, distributable
income and the per unit information are non-GAAP measures that do not
have any standardized meaning prescribed by Canadian GAAP and,
therefore, unlikely to be comparable to similar measures presented by
other real estate companies and trusts.
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------
Total operating
cash flows $ 38,316 $ 21,377 $ 60,918 $ 37,731
Net change in
operating working
capital (8,555) 857 (8,401) 1,705
Add:
Deferred
financing costs
amortization 1,100 693 2,379 1,469
Deduct:
Deferred
financing costs
amortization
post May 2,
2004 (622) (241) (948) (506)
Amortization of
net premium on
long-term debt
assumed after
May 2, 2004 (254) (11) (343) (23)
---------------------------------------------------------------------
Distributable
income $ 29,985 $ 22,675 $ 53,605 $ 40,376
Distribution
declared to
unitholders $ 22,005 $ 17,712 $ 42,866 $ 34,792
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average
units outstanding
- basic
and diluted 56,429,362 56,217,368 56,408,370 54,771,413
Distributable
income earned
per unit $ 0.531 $ 0.403 $ 0.950 $ 0.737
Actual
distributions
declared
per unit $ 0.390 $ 0.315 $ 0.760 $ 0.630
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per unit
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------
Numerator
Earnings (loss)
from continuing
operations $ (102,573) $ 3,940 $ (99,004) $ 3,479
Earnings from
discontinued
operations $ 5,073 $ 121 $ 5,134 $ 7,879
---------------------------------------------------------------------
Denominator
Denominator for
basic earnings
per unit -
weighted average
units 56,429,362 56,217,368 56,408,370 54,771,413
---------------------------------------------------------------------
Denominator for
diluted
earnings per
unit adjusted
for weighted
average units
and assumed
conversion 56,429,362 56,217,368 56,408,370 54,771,413
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings (loss)
per unit from
continuing
operations
Basic $ (1.82) $ 0.07 $ (1.75) $ 0.07
Diluted $ (1.82) $ 0.07 $ (1.75) $ 0.07
---------------------------------------------------------------------
Earnings per unit
from discontinued
operations
Basic $ 0.09 $ - $ 0.09 $ 0.14
Diluted $ 0.09 $ - $ 0.09 $ 0.14
---------------------------------------------------------------------
---------------------------------------------------------------------
11. INCOME TAXES
Although Boardwalk REIT is a "mutual fund trust" as defined under the
Income Tax Act (Canada) and accordingly is not taxable on its income
to the extent that its income is distributed to its unitholders. This
exemption does not extend to the corporate subsidiaries of Boardwalk
REIT that are subject to income tax. The adjustment for change in
effective tax rate reflects the reduction of the current combined
federal and provincial substantively enacted rate in the province of
Alberta. On June 22, 2007, Bill C-52 received royal assent (see Note
3 for further details). As such, the Trust, to be in compliance with
Canadian GAAP, is required to estimate what the impact of the
reported tax amount would be on January1, 2011.
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------
Continuing
operations $ 111,630 $ (122) $ 111,398 $ (224)
Discontinued
operations - - - -
---------------------------------------------------
Total future
income taxes
(recovery) $ 111,630 $ (122) $ 111,398 $ (224)
---------------------------------------------------
---------------------------------------------------
Future income
taxes (recovery)
consist of the
following:
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------
Tax (recovery)
expense based on
expected rate $ 40 $ (166) $ 149 $ (321)
Adjustment to
future income
tax liabilities 111,590 44 111,249 97
---------------------------------------------------
Future income
taxes (recovery) $ 111,630 $ (122) $ 111,398 $ (224)
---------------------------------------------------
---------------------------------------------------
The future income
tax asset
(liability) is
calculated as
follows:
As at June 30, December 31,
2007 2006
-------------------------
Tax asset related to operating losses $ 320 $ 294
Tax liability related to differences
in tax and book basis $ (111,401) 22
---------------------------------------------------------------------
Future income tax asset (liability) $ (111,081) $ 316
-------------------------
-------------------------
12. COMMITMENTS AND CONTINGENCIES
At June 30, 2007, the Trust had a long-term supply arrangement with
one electrical utility company to supply the Trust with its
electrical power needs for southern Alberta for the next eighteen
months at a blended rate of approximately $0.068/kwh. The agreement
provides that the Trust purchase its power for all southern Alberta
properties under contract for the upcoming months.
Beginning in November 2003, the Alberta government implemented a
natural gas rebate program covering the winter usage months of
November through March. In October 2005, the natural gas rebate
program was extended to cover the month of October. In January of
2006, the Alberta government announced a three-year extension to the
program covering the winter months of October through March. The
extension of the natural gas rebate program will end March 31, 2009.
The rebate program becomes active when the natural gas consumer price
charged by two of the three major gas companies in Alberta exceeds
$5.50/GJ for any individual winter usage month. For January through
June 2006, Boardwalk REIT was eligible for estimated rebates
totalling approximately $1.4 million. For January to June 2007,
Boardwalk REIT was eligible for rebates totalling approximately
$0.9 million.
The Trust also entered into three natural gas supply contracts, which
provide a degree of price certainty for natural gas usage in the
provinces of Saskatchewan, Ontario and Quebec. The contracts cover
between 75 - 100% of the Trust's natural gas requirements for each of
the provinces. The physical supply agreement for Saskatchewan runs
from November 1, 2006 to October 31, 2007 and provides the commodity
at a price of $8.48/GJ. The physical supply agreements for Eastern
Canada covered the period from June 1, 2006 to June 1, 2007 and
provided the commodity near $8.00/GJ.
Boardwalk REIT, in the normal course of operations, will become
subject to a variety of legal and other claims against the Trust.
Management and the Trust's legal counsel evaluate all claims on their
apparent merits, and accrue management's best estimate of the
estimated costs to satisfy such claims. Management believes that the
outcome of legal and other claims filed against the Trust or its
predecessor will not be material to Boardwalk REIT.
13. GUARANTEES
In the normal course of business, various agreements may be entered
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 an entity 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, a mortgage assumed by the
purchaser will have an indirect guarantee provided to the lender
until the mortgage is refinanced by the purchaser. In the event of
default by the purchaser, the seller would be liable for the
outstanding mortgage balance. Boardwalk REIT's maximum exposure at
June 30, 2007 is approximately $5.3 million (June 30, 2006 -
$5.5 million). In the event of default, Boardwalk REIT's recourse for
recovery includes the sale of the respective building asset.
Boardwalk REIT 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, at June 30, 2007, no amounts have been recorded in the
consolidated financial statements with respect to the above noted
indirect guarantees.
14. SEGMENTED INFORMATION
Boardwalk REIT specializes in multi-family residential housing and
operates primarily within one business segment in five provinces
located in Canada. The following summary presents segmented financial
information for Boardwalk REIT's business by geographic location.
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---------------------------------------------------
Alberta
Revenue $ 53,578 $ 40,862 $ 102,485 $ 80,658
---------------------------------------------------
Expenses
Operating 7,853 6,358 15,349 12,274
Utilities 5,112 4,214 11,757 10,718
Utility rebates (8) (6) (930) (1,384)
Property taxes 3,365 3,189 6,540 6,395
---------------------------------------------------------------------
16,322 13,755 32,716 28,003
---------------------------------------------------
Net operating
income $ 37,256 $ 27,107 $ 69,769 $ 52,655
---------------------------------------------------
Saskatchewan
Revenue $ 9,420 $ 8,721 $ 18,632 $ 17,414
---------------------------------------------------
Expenses
Operating 1,615 1,529 3,209 2,986
Utilities 797 1,291 2,522 2,760
Property taxes 1,157 1,187 2,328 2,438
---------------------------------------------------------------------
3,569 4,007 8,059 8,184
---------------------------------------------------
Net operating
income $ 5,851 $ 4,714 $ 10,573 $ 9,230
---------------------------------------------------
Ontario
Revenue $ 9,074 $ 9,041 $ 18,129 $ 18,075
---------------------------------------------------
Expenses
Operating 1,364 1,476 2,832 2,839
Utilities 1,315 1,355 3,269 3,148
Property taxes 1,709 1,609 3,408 3,411
---------------------------------------------------------------------
4,388 4,440 9,509 9,398
---------------------------------------------------
Net operating
income $ 4,686 $ 4,601 $ 8,620 $ 8,677
---------------------------------------------------
British Columbia
Revenue $ 2,854 $ 2,137 $ 5,625 $ 3,788
---------------------------------------------------
Expenses
Operating 568 334 1,189 691
Utilities 328 310 623 449
Property taxes 262 33 516 222
---------------------------------------------------
1,158 677 2,328 1,362
---------------------------------------------------
Net operating
income $ 1,696 $ 1,460 $ 3,297 $ 2,426
---------------------------------------------------
Quebec
Revenue $ 17,099 $ 16,897 $ 34,113 $ 33,294
---------------------------------------------------
Expenses
Operating 3,452 3,402 6,417 6,517
Utilities 1,610 1,788 4,604 4,599
Property taxes 1,893 1,731 3,782 3,491
---------------------------------------------------------------------
6,955 6,921 14,803 14,607
---------------------------------------------------
Net operating
income $ 10,144 $ 9,976 $ 19,310 $ 18,687
---------------------------------------------------
Total
Net operating
income $ 59,633 $ 47,858 $ 111,569 $ 91,675
Unallocated
revenue(*) 421 587 774 1,038
Unallocated
expenses(xx) (157,554) (44,384) (206,213) (81,355)
---------------------------------------------------------------------
Net earnings
(loss) for
the period $ (97,500) $ 4,061 $ (93,870) $ 11,358
---------------------------------------------------
---------------------------------------------------
As at June 30, December 31,
2007 2006
-------------------------
Alberta
Identifiable assets
Revenue producing properties $ 1,111,986 $ 924,112
Mortgages and accounts receivable 301 1,249
Tenants' security deposit 9,932 7,988
-------------------------
$ 1,122,219 $ 933,349
-------------------------
Saskatchewan
Identifiable assets
Revenue producing properties $ 169,772 $ 171,733
Mortgages and accounts receivable 148 216
Tenants' security deposits 1,791 1,491
-------------------------
$ 171,711 $ 173,440
-------------------------
Ontario
Identifiable assets
Revenue producing properties $ 197,989 $ 199,552
Mortgages and accounts receivable 60 122
-------------------------
$ 198,049 $ 199,674
-------------------------
British Columbia
Identifiable assets
Revenue producing properties $ 104,251 $ 98,111
Mortgages and accounts receivable 5 37
Tenants' security deposits 439 408
-------------------------
$ 104,695 $ 98,556
-------------------------
Quebec
Identifiable assets
Revenue producing properties $ 419,872 $ 419,962
Mortgages and accounts receivable 853 859
-------------------------
$ 420,725 $ 420,821
-------------------------
Total assets
Identifiable assets $ 2,017,399 $ 1,825,840
Unallocated assets(xxx) 52,543 44,620
-------------------------
$ 2,069,942 $ 1,870,460
-------------------------
-------------------------
(*) Unallocated revenue includes property sales, interest income,
revenue from discontinued operations and other non-rental
income.
(xx) Unallocated expenses include cost of property sales, operating
expenses from discontinued operations, non-rental operating
expenses, corporate administration, financing costs,
amortization, income taxes and other provisions.
(xxx) Unallocated assets include discontinued assets, cash, short-
term investments and other assets.
15. SUBSEQUENT EVENTS
Subsequent to June 30, 2007, the Trust has filed an application with
and received approval from the Toronto Stock Exchange to commence a
Normal Course Issuer Bid. The Bid would allow Boardwalk REIT to
purchase up to 4,267,048 trust units, representing 10% of the public
float of its trust unit capital, through the facilities of The
Toronto Stock Exchange. The Bid is subject to regulatory approval,
and will terminate one year later, or at such earlier time as the Bid
is complete.
>>
%SEDAR: 00020684E
For further information please contact:
Boardwalk REIT
Sam Kolias,
CEO,
(403) 531-9255;
Roberto Geremia,
President,
(403) 531-9255;
