TSX SYMBOL: BEI.UN November 9, 2007
Boardwalk REIT Reports Solid Third Quarter 2007 Financial Results with Funds From Operations per Unit Up 27.1% and DI per Unit up 24.5% YOY; Further Upward Revision in Guidance; and an Increase in Annual Distributions by 13.0% to $1.80 Per Year.
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SUPPLEMENTAL NOTES - Q3-2007 NOVEMBER 9, 2007 (Printer Friendly PDF File)
Calgary, Alberta – November 9, 2007
- 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 third quarter of 2007
with FFO per Unit up 27.1% and DI per Unit up 24.5% YOY; further upward
revision in guidance for 2007; and an increase in annual distributions by 13%
to $1.80 per unit, per year.
For the third quarter ended September 30, 2007, the Trust reported Funds
From Operations(1) ("FFO") of $34.1 million and FFO per unit of $0.61 on a
diluted basis, compared to FFO of $26.9 million and FFO per unit of $0.48 for
the same period last year. Distributable Income ("DI") for the quarter was
$34.3 million and DI per Unit was $0.61 on a diluted basis, compared to
$27.3 million and $0.49 per unit, respectively, for the same period last year.
<<
Highlights of the Trust's Third Quarter 2007 financial results include:
- Rental revenues of $95.7 million, an increase of 18.0%, compared to
$81.1 million for the three-month period ended September 30, 2006.
- Net operating income of $64.1 million, representing a 24.3% increase
from $51.6 million in the same period last year.
- FFO of $34.1 million, an increase of 26.7%, compared to $26.9 million
for the three-month period ended September 30, 2006.
- FFO per unit was $0.61 on a diluted basis, up 27.1%, compared to
$0.48 for the three-month period ended September 30, 2006.
- DI was $0.61 per unit, up 24.5% from $0.49 for the three months ended
September 30, 2006.
- Net earnings of $13.1 million, an increase of $5.6 million for the
three-month period ended September 30 2007 compared to the same
period in the prior year. For the nine-month period ended
September 30, 2007, net earnings were $(80.8) million compared to
$18.9 million for the same period as last year as a direct result of
a one-time non-cash deferred tax charge of $113 million relating to
the Royal Assent of Bill C-52 on June 22, 2007.
>>
Commenting on the Trust's Q3 2007 results, Sam Kolias, C.E.O., said: "We
are pleased to report on another successful quarter for the Trust. Economic
expansion continued in our Western Canadian markets this quarter, delivering
continued positive revenue growth. Though our primary gains this quarter were
achieved by our Western markets, our geographic diversity across both Eastern
and Western markets remains a key asset."
"Our Saskatchewan markets, which make up 13% of our portfolio, had a
particularly positive quarter. Positive job creation, wage growth and
migration resulted in an increase in demand of rental units pushing occupancy
and market rents higher. Average market rents were up approximately $178 in
Saskatoon; and $156 in Regina at the end of Q3 over Q2 2007."
"Our Alberta portfolio, which makes up approximately 53% of our total
portfolio, continued to produce significant revenue growth this quarter. In
Edmonton, average market rents were up approximately $60 at the end of Q3 over
Q2. Market rents continued their upward trend in Calgary, posting a slight
increase of $4 at the end of Q3 over Q2. Although Calgary market rents
increased slightly at the end of September, this market is now experiencing a
more typical seasonality in market rents. Calgary rental market fundamentals
are moving towards a balance between supply and demand as vacancy rose from
3.14% in Q2 to 3.34% in Q3."
Roberto Geremia, President, added: "The tempering in Calgary market rents
demonstrates the effectiveness of the free market. Free market pricing allows
for levels of supply and demand to adjust, increasing apartment alternatives
for consumers as vacancy rises. Our Calgary market fundamentals reflect how
well the free market works and we stand firm in our stance against legislated
rent controls."
"Our mark-to-market lease differential - the difference between the
in-place rental revenue (based on actual rental rates obtained) and potential
rental revenue (based on market rental rates) - continued to grow this
quarter. We continue to strive to close the mark-to-market gap while
maintaining our Customer-focused policies. Our Customer-centric policies
increase Customer loyalty and satisfaction, lowers turnovers and expenses
associated with turnovers, maximizes revenues and increases the sustainability
of our financial performance."
<<
Operational Highlights
- The average vacancy rate across the Trust's portfolio for the third
quarter of 2007 was 3.93%, down from 4.16% in the second quarter of
2007, but up from 3.73% for the third quarter of 2006.
- The average monthly rent realized in the third quarter of 2007 was
$879 per unit, up $78 from $801 per unit in the same period last
year.
- The average market rent for the Trust's properties at the end of
September 2007 was an estimated $1096 per rental unit per month,
which compares to an average in-place monthly rent per occupied unit
of $907 as at September 30, 2007. This translates to an estimated
'loss-to-lease' of approximately $78.5 million on an annualized
basis, or $1.39 per outstanding Trust Unit, given existing occupancy
levels.
>>
More detail on our operations can 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 September 30, 2007 showed rental revenue growth of
11.4% on a year-over-year basis. Operating expenses increased 2.3%, resulting
in an increase in NOI of 16.2% compared to the same period last year. A total
of 33,014 units, representing approximately 90% of Boardwalk REIT's total
portfolio, were classified as stabilized as at September 30, 2007.
<<
Same-Property Results - Stabilized Portfolio
Net % of
Operating Operating Stabi-
No. of Revenue Expense Income lized
Sep 30 2007 - 3 M Units Growth Growth Growth NOI
Calgary 4,973 16.3% -2.9% 23.2% 21%
Edmonton 10,369 18.8% 14.6% 20.7% 34%
Other Alberta 1,680 10.2% 19.7% 6.6% 6%
British Columbia 633 12.3% -21.3% 27.3% 2%
Saskatchewan 4,660 11.3% 5.3% 15.2% 10%
Quebec 6,434 3.6% -7.0% 9.7% 19%
Ontario 4,265 -0.9% -6.4% 4.8% 8%
------------------------------------------------
33,014 11.4% 2.3% 16.2% 100%
------------------------------------------------
------------------------------------------------
Net % of
Operating Operating Stabi-
No. of Revenue Expense Income lized
Sep 30 2007 - 9 M Units Growth Growth Growth NOI
Calgary 4,973 20.4% 3.9% 27.4% 21%
Edmonton 10,369 17.8% 10.5% 21.7% 34%
Other Alberta 1,680 14.4% 12.2% 15.4% 6%
British Columbia 633 9.7% -1.7% 15.5% 2%
Saskatchewan 4,660 8.4% 0.5% 14.8% 10%
Quebec 6,434 2.7% -3.3% 7.0% 18%
Ontario 4,265 -0.2% -1.9% 1.6% 8%
------------------------------------------------
33,014 11.5% 3.0% 16.8% 100%
------------------------------------------------
------------------------------------------------
Commenting on Boardwalk REIT's same-property results, Sam Kolias, CEO,
said, "In the third quarter, we are pleased to see revenue growth accelerating
more quickly than expense increases on a stabilized property basis for the
eighth straight quarter. The increase in reported stabilized revenue was
driven mainly by the Trust's Alberta operations, which accounts for
approximately 61% of the Trust's reported stabilized net operating income."
Sequential Revenue Analysis
Stabilized Revenue Growth Q3 2007 Vs...
No. Units Q1 2007 Q2 2007
-------------------------------------------------------------------------
Calgary 4,973 5.34% 1.05%
Edmonton 10,369 8.65% 4.01%
Other Alberta 1,680 0.50% 0.86%
British Columbia 633 4.41% 2.61%
Ontario 4,265 -1.06% -1.44%
Quebec 6,434 2.86% 2.27%
Saskatchewan 4,660 7.92% 5.52%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
33,014 5.17% 2.48%
>>
Commenting on Boardwalk REIT's stabilized revenue growth, Sam Kolias,
CEO, said, "Stabilized revenues reported for the current quarter were up 5.17%
comparing Q3 over Q1 2007, and 2.48% comparing Q3 over Q2 2007. Although
stabilized revenue growth tempered slightly through the third quarter, we
estimate that growth will again increase in the first half of 2008 when annual
rental increases in Alberta are realized. Rental legislation enacted in May of
this year (retroactive to the beginning of 2007) limits rental increases to
once per year in Alberta, our largest market, resulting in larger rental
increases given less often."
<<
Real Estate Acquisition/Disposition Activity
Closed - 2007
No. of
Building Name City Units Type Price
-------------------------------------------------------------------------
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
Ridgemont
Apartments Coquitlam 41 Walk up $3,700,000
St. Charles
Place &
Parkview Manor Edmonton 51 Walk up $4,150,000
Springwood Place
Apartments Spruce Grove 160 Low Rise $16,000,000
Lakeview
Apartments Calgary 120 Walk Up $21,850,000
High Rise &
Whitehall Square Edmonton 598 Walk Up $111,250,000
-------------------------------------------------------------------------
Total 2,421 $340,450,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Year 1 Year 2
Building Name Cap Rate Cap Rate $/unit $/sq ft Date Closed
-------------------------------------------------------------------------
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
Ridgemont
Apartments 5.03% 5.66% $90,244 $142 January 25, 2007
St. Charles
Place &
Parkview Manor 4.52% 5.52% $81,373 $104 January 26, 2007
Springwood Place
Apartments 5.25% 5.76% $100,000 $130 May 28, 2007
Lakeview
Apartments 4.80% 5.86% $182,083 $203 September 20, 2007
Whitehall Square 5.12% 5.53% $186,037 $204 September 24, 2007
-------------------------------------------------------------------------
Total 5.20% 6.11% $147,673 $162
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Dispositions
No. of
Building Name City Units Type Price
-------------------------------------------------------------------------
St. Charles Place
& Parkview Manor Edmonton 51 Walk Up $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
-------------------------------------------------------------------------
>>
The Trust also sold and closed 45 units of a 90-unit property located in
Calgary, Alberta that is being developed into condominium units for sale.
Commenting on the Trust's property acquisitions and dispositions, Bill
Chidley, Senior Vice President, Corporate Development, said: "To date, we have
completed acquisitions of 2421 apartment units in 2007. All of these
acquisitions are located in strong Western markets. We confirm our acquisition
guidance 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 continues to explore the possibility of developing new
multi-family 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 continue to explore new accretive
multi-family development and are currently in the process of density
intensification and financial feasibility studies, as well as the design and
permitting stages.
Over the third quarter, the Trust completed a preliminary densification
study on Calgary. The planning consultants estimate that in Calgary an
additional density of seven to fourteen thousand units could be achieved with
re-zoning, the vast majority on eleven sites. We are in the early stages of
this process with the earliest completion of any new development 2.5 to 4
years away. As part of this investigation, we are considering a number of ways
to surface this densification value, including direct development, joint
venture with an experienced developer and the sale of excess density. The
Edmonton densification study is in progress and is focusing on two Edmonton
properties, West Edmonton Village and Viking Arms.
Though we are excited by this potential, it is important to note that to
obtain the estimated maximum density, it will be necessary to demolish
existing rental units. It is our belief that the key to this development is to
find the optimal trade-off between maximizing density and retaining as much of
the existing rental stock as possible.
Continued Financial Strength
The Trust built upon its solid financial position through the third
quarter of 2007. Boardwalk REIT's total principal mortgage and debt
outstanding was $1.81 billion as at September 30, 2007, as compared to
$1.52 billion as at September 30, 2006. As at September 30, 2007, the Trust's
total debt had an average maturity of 3 years with a weighted average interest
rate of 5.22%. The Trust's debt-to-total enterprise value was 40.0%.
The Trust currently has 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 quarter
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 September 30, 2007 was 2.48 times, compared to 2.36 times in the
same period last year.
Alberta Royalty Review
On October 25, 2007, the Alberta Government announced changes to the
existing oil and gas royalty program. The new program is more heavily based on
a sliding scale that is responsive to the market price of the underlying
commodity. This new scale increases the top end of the royalty rates from
approximately 35% to a maximum of 50%. It is the government's belief that this
new system strikes a balance between the needs of both the province and the
producers of these commodities. The new program will commence in January 2009.
For more details on this new program, please visit the Government of Alberta
website - www.energy.gov.ab.ca
It is too early to know what effect this new program will have on the
Alberta oil and gas industry; however, this program will result in an
increased tax on oil and gas producers and may result in some of these
producers revisiting the assumptions they have used in the determination of
investment in the province of Alberta. It is our current belief that the high
price of oil will continue to encourage further investment, in particular in
the Alberta Tar Sands. We are pleased that the market uncertainty that
preceded the release of the details of this new program has been put to rest
and that a thorough analysis and better-educated decisions can now be made.
Normal Course Issuer Bid
In the second quarter, we announced that we would be commencing with a
Normal Course Issuer Bid as a response to the recent volatility in the public
markets. In the third quarter, we obtained approval from the Board of Trustees
and public securities bodies to purchase up to 10% of our existing outstanding
float or approximately 4.1 million shares. To date, we have purchased
approximately 627 thousand trust units on the public market with a total of
approximately $28.6 million, or for an average price of $45.69 per trust unit.
We continue to believe that one of the best investments we can make is
purchasing our trust units at current levels.
Outlook and 2007 Financial Guidance
Commenting on the outlook for the Trust, Roberto Geremia, President,
said, "After reporting on three strong quarters, and after reviewing our key
assumptions, we are revising our Guidance upward for fiscal 2007. For 2007, we
are expecting a FFO range of between $2.00 to $2.05 as compared to the $1.95
to $2.04 previously announced and for DI the revised range is between $2.02 to
$2.06 as compared to the previously announced $1.97 to $2.05. We are also
revising upward our expectations of Stabilized Properties NOI (or NOI on
properties we have held for at least 24 months) performance to an expected
growth of 15% from the previous 10% while maintaining our target apartment
acquisition range of 2,000 to 3,000 apartment units."
2008 Financial Guidance
As is customary in the third quarter, we would like to introduce fiscal
2008 guidance for FFO and DI on a per trust unit basis of between $2.35 to
$2.50 and $2.37 to $2.52, respectively. In computing these estimates, we have
assumed the acquisition of between 1,000 and 2,000 apartments, as well as
stabilized properties reporting NOI growth of approximately 8% to 14%.
Distribution Increase
Commenting on the distribution increase, Roberto Geremia, President,
said, "After a detailed review of our year to date results and estimates of
both our year end and 2008 results, the Board of Trustees has initiated an
increase in the monthly distribution. Effective for unitholders on record at
November 30, 2007, Boardwalk will increase its monthly trust unit distribution
paid out to its unitholders from $0.1333 ($1.60 annualized) to $0.1500 ($1.80
annualized). In times when many Trusts are reviewing and considering decreases
in distributions, we are very thankful to be in a financial position that
warrants an increase in distributions of approximately 13%."
November 2007 Monthly Distribution
The Trust has declared its November 2007 distribution in the amount of
15.00 cents per unit ($1.80 annualized). The November distribution will be
payable on December 17, 2007 to Unitholders of Record on November 30, 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
third quarter 2007 Supplemental Information is available on our investor
website at www.boardwalkreit.com.
Teleconference on Third 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 third 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
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2027960
Replay: An audio recording of the teleconference will be available from
1:00 pm ET on Friday, November 09 2007 until 11:59 pm ET on Friday,
November 16, 2007. You can access it by dialing 416-640-1917 and using the
passcode 21248968 followed by the pound 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
stable and growing 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
36,500 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 September 30, December 31,
2007 2006
(Unaudited) (Audited)
---------------------------
Assets
Revenue producing properties (NOTE 4) $ 2,149,318 $ 1,836,429
Other assets (NOTE 5) 19,960 13,873
Future income taxes (NOTE 11) - 316
Mortgages and accounts receivable 4,623 4,388
Segregated tenants' security deposits 13,402 9,998
Discontinued operations (NOTE 6) 4,589 5,456
-------------------------------------------------------------------------
$ 2,191,892 $ 1,870,460
---------------------------
---------------------------
Liabilities
Mortgages payable (NOTE 3) $ 1,646,844 $ 1,380,578
Debentures (NOTES 3 and 7) 118,677 118,448
Accounts payable and accrued liabilities 41,606 35,423
Refundable tenants' security deposits and other 16,255 13,102
Bank indebtedness 101,346 4,042
-------------------------------------------------------------------------
1,924,728 1,551,593
Future income taxes (NOTES 3 and 11) 113,143 -
-------------------------------------------------------------------------
$ 2,037,871 $ 1,551,593
Unitholders' Equity
Unitholders' equity $ 154,021 $ 318,867
-------------------------------------------------------------------------
$ 2,191,892 $ 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 9 months 9 months
ended ended ended ended
September 30, September 30, September 30, September 30,
2007 2006 2007 2006
-------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue
Rental income $ 95,702 $ 81,083 $ 275,983 $ 235,805
-------------------------------------------------------
Expenses
Revenue producing
properties:
Operating
expenses 14,768 14,003 46,513 42,107
Utilities 8,472 7,464 31,629 29,346
Utility rebate
(NOTE 12) - (39) (933) (1,427)
Property taxes 8,317 8,041 24,888 24,201
Administration 5,264 3,867 15,862 12,712
Financing costs 23,734 20,209 67,973 60,691
Deferred
financing costs
amortization
(NOTE 3) 1,081 767 3,460 2,233
Amortization of
capital assets 21,838 18,887 61,605 54,620
-------------------------------------------------------------------------
83,474 73,199 250,997 224,483
-------------------------------------------------------
Earnings from
continuing
operations before
income taxes 12,228 7,884 24,986 11,322
Large
corporations
taxes 15 - 15 8
Future income
taxes (NOTE 11) 2,055 446 113,453 222
-------------------------------------------------------------------------
Earnings (loss)
from continuing
operations 10,158 7,438 (88,482) 11,092
Earnings from
discontinued
operations, net
of tax (NOTE 6) 2,900 64 7,670 7,768
-------------------------------------------------------------------------
Net earnings (loss) 13,058 7,502 (80,812) 18,860
Other comprehensive
income - - - -
-------------------------------------------------------
Comprehensive
income (loss) $ 13,058 $ 7,502 $ (80,812) $ 18,860
-------------------------------------------------------
-------------------------------------------------------
Basic earnings
(loss) per unit
(NOTE 10)
- from continuing
operations $ 0.18 $ 0.13 $ (1.58) $ 0.20
- from
discontinued
operations 0.05 0.00 0.14 0.14
-------------------------------------------------------------------------
Basic earnings
(loss) per unit $ 0.23 $ 0.13 $ (1.44) $ 0.34
-------------------------------------------------------
-------------------------------------------------------
Diluted earnings
(loss) per unit
(NOTE 10)
- from continuing
operations $ 0.18 $ 0.13 $ (1.58) $ 0.20
- from
discontinued
operations 0.05 0.00 0.14 0.14
-------------------------------------------------------------------------
Diluted earnings
(loss) per unit $ 0.23 $ 0.13 $ (1.44) $ 0.34
-------------------------------------------------------
-------------------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
(CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS)
9 months 9 months
ended ended
September 30, September 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 (151) 63,594
Units issued under distribution
reinvestment plan 6,194 4,008
Restructuring costs - (165)
Deferred unit plan (NOTE 8) 1,275 597
Units issued for vested deferred units (NOTE 8) 400 -
Unit purchased and cancelled (NOTE 9) (26,361) -
-------------------------------------------------------------------------
Balance, end of period $ 347,101 $ 363,730
---------------------------
Cumulative earnings
Balance, beginning of period $ 154,917 $ 129,530
Net earnings (loss) for the period (80,812) 18,860
-------------------------------------------------------------------------
Balance, end of period $ 74,105 $ 148,390
---------------------------
Accumulated 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) (65,391) (52,522)
-------------------------------------------------------------------------
Balance, end of period $ (267,185) $ (182,005)
---------------------------
Total unitholders' equity $ 154,021 $ 330,115
---------------------------
---------------------------
Units issued and outstanding 55,928,929 56,303,731
---------------------------
---------------------------
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 30, September 30, September 30, September 30,
2007 2006 2007 2006
-------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating activities
Net earnings
(loss) $ 13,058 $ 7,502 $ (80,812) $ 18,860
Earnings from
discontinued
operations,
net of tax (2,900) (64) (7,670) (7,768)
Future income
taxes 2,055 446 113,453 222
Amortization of
capital assets 21,838 18,887 61,605 54,620
-------------------------------------------------------------------------
34,051 26,771 86,576 65,934
Cash from
discontinued
operations - 111 (7) 383
Net change in
operating
working capital (4,302) 2,316 4,098 612
-------------------------------------------------------------------------
Total operating
cash flows 29,749 29,198 90,667 66,929
-------------------------------------------------------
Financing activities
Issue of trust
units (net of
issue costs)
(NOTE 9) 1,948 1,499 6,043 67,437
Distributions paid (22,010) (17,725) (64,869) (52,199)
Unit repurchase
program (NOTE 9) (26,361) - (26,361) -
Financing of
revenue producing
properties 68,933 7,293 387,618 20,039
Repayment of debt
on revenue
producing
properties (12,883) (14,177) (145,120) (39,803)
Deferred financing
costs incurred
(net of
amortization) (1,444) (180) (6,687) (379)
-------------------------------------------------------------------------
8,183 (23,290) 150,624 (4,905)
-------------------------------------------------------
Investing activities
Purchases of
revenue producing
properties
(NOTE 4) (133,100) - (309,313) (60,795)
Improvements to
revenue producing
properties (15,238) (11,051) (48,732) (29,623)
Net cash proceeds
from sale of
properties 8,031 - 20,306 20,274
Additions to
corporate
technology assets (163) (379) (856) (1,007)
-------------------------------------------------------------------------
(140,470) (11,430) (338,595) (71,151)
-------------------------------------------------------
Net decrease in
cash and cash
equivalents
balance (102,538) (5,522) (97,304) (9,127)
Cash and cash
equivalents (bank
indebtedness),
beginning of period 1,192 7,540 (4,042) 11,145
-------------------------------------------------------------------------
Cash and cash
equivalents (bank
indebtedness),
end of period $ (101,346) $ 2,018 $ (101,346) $ 2,018
-------------------------------------------------------
-------------------------------------------------------
Supplementary cash
flow information:
Capital taxes
received $ - $ (676) $ - $ (326)
Interest paid $ 24,615 $ 21,876 $ 55,906 $ 62,534
-------------------------------------------------------
-------------------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended September 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 nine
months ended September 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:
September 30, December 31,
2007 2006
---------------------------
Mortgages Payable
Principal outstanding $ 1,694,405 $ 1,420,701
Unamortized deferred financing costs (48,769) (41,853)
Unamortized mark-to-market adjustment 1,208 1,730
---------------------------------------------------------------------
$ 1,646,844 $ 1,380,578
---------------------------
---------------------------
Debentures
Principal outstanding $ 120,000 $ 120,000
Unamortized deferred financing costs $ (1,323) (1,552)
---------------------------------------------------------------------
$ 118,677 $ 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 future income
tax liability at June 30, 2007 and subsequently updated at
September 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
recorded a future income tax liability at June 30, 2007 of
$111.1 million, which was revised upward by $1.7 million to
$112.8 million at September 30, 2007. 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 September 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.
Future Changes in Significant Accounting Policies
Boardwalk REIT monitored the recently issued CICA accounting
pronouncements to assess the applicability and impact, if any, of
these new pronouncements on our consolidated financial statements and
note disclosures. The CICA issued three new accounting standards that
are effective for the Trust's fiscal year commencing January 1, 2008:
a) Section 1535 - Capital Disclosures
b) Section 3862 - Financial Instruments-Disclosure
c) Section 3863 - Financial Instruments-Presentation
Section 1535 - Capital Disclosures requires the disclosure of both
qualitative and quantitative information, which allows the users of
financial statements to evaluate the entity's objective, policies and
processes for managing capital.
Section 3862 - Financial Instruments-Disclosure and Section 3863 -
Financial Instruments-Presentation, which will replace Section 3861 -
Financial Instruments Presentation and Disclosure, revise and enhance
the disclosure requirements for financial instruments and carry
forward unchanged the presentation requirements for financial
instruments.
The new accounting pronouncements are not expected to have any
material impact to the consolidated financial statements on adoption.
4. REVENUE PRODUCING PROPERTIES
Acquisitions
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------
Cash paid $ 133,100 $ - $ 309,313 $ 60,795
Debt assumed - - 31,209 -
---------------------------------------------------------------------
Total purchase
price 133,100 - 340,522 60,795
Fair value
adjustments to
debt - - 376 -
---------------------------------------------------------------------
Book value $ 133,100 $ - $ 340,898 $ 60,795
---------------------------------------------------
---------------------------------------------------
Allocation of
book value
to revenue
producing
properties $ 129,635 $ - $ 331,035 $ 58,562
Allocation of
book value
to other
assets 3,465 - 9,863 2,233
---------------------------------------------------------------------
$ 133,100 $ - $ 340,898 $ 60,795
---------------------------------------------------
---------------------------------------------------
Multi-family
units acquired 718 - 2,421 840
---------------------------------------------------
---------------------------------------------------
Dispositions
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------
Cash received $ 8,031 $ - $ 20,306 $ 20,274
Cost of
dispositions - - 125 426
---------------------------------------------------------------------
Total proceeds 8,031 - 20,431 20,700
Net book value 5,131 - 12,721 13,173
---------------------------------------------------------------------
Gain on
dispositions $ 2,900 $ - $ 7,710 $ 7,527
---------------------------------------------------
---------------------------------------------------
Multi-family
units sold 24 - 96 194
---------------------------------------------------
---------------------------------------------------
5. OTHER ASSETS
September 30, December 31,
As at 2007 2006
---------------------------
Corporate technology assets (net of
accumulated amortization) $ 3,278 $ 3,436
Head office building (net of accumulated
amortization) 2,330 2,329
Deposits on potential property acquisitions - 814
Prepaid parts and supplies 2,790 2,097
Lease goodwill and customer relationship
intangibles (net of accumulated
amortization) 6,233 1,271
Prepaid property taxes 2,823 1,193
Prepaid and other 2,506 2,733
---------------------------------------------------------------------
$ 19,960 $ 13,873
---------------------------
---------------------------
Accumulated amortization for corporate technology assets and head
office building at September 30, 2007 were $13.1 million and
$1.1 million, respectively (December 31, 2006 - $12.1 million and
$1.0 million, respectively). Accumulated amortization for lease
goodwill and customer relationship intangibles at September 30, 2007
was $12.7 million (December 31, 2006 - $7.9 million)
6. DISCONTINUED OPERATIONS
During the third quarter of 2007, it was determined that the plan to
sell a 108-unit property in Edmonton, Alberta would not proceed. As a
result, this building was reclassified as part of continuing
operations. This Edmonton property is part of our Alberta segment in
our segmented information disclosure.
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 9 months 9 months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------
Revenue
Rental income $ - $ 273 $ 219 $ 1,011
---------------------------------------------------------------------
Expenses
Revenue
producing
properties:
Operating
expenses - 30 99 168
Utilities - 25 41 130
Utility
rebate - - (5) (12)
Property
taxes - 19 25 82
Administration - 6 54 28
Financing
costs - 81 13 228
Deferred
financing
cost
amortization - 1 - 4
Amortization
of capital
assets - 47 32 142
---------------------------------------------------------------------
- 209 259 770
---------------------------------------------------
- 64 (40) 241
Gain on
dispositions 2,900 - 7,710 7,527
---------------------------------------------------------------------
Earnings from
discontinued
operations $ 2,900 $ 64 $ 7,670 $ 7,768
---------------------------------------------------
---------------------------------------------------
September 30, December 31,
2007 2006
---------------------------
Discontinued Assets
Properties held for redevelopment $ 4,589 $ 5,456
---------------------------
---------------------------
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 September 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 September 30, 2007, total compensation
costs of $2.1 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 39,860 -
Additional deferred units earned on
unvested units 2,454 -
Deferred units cancelled (10,478) -
---------------------------------------------------------------------
September 30, 2007 105,582 -
---------------------------------------------------------------------
---------------------------------------------------------------------
In the third quarter of 2007, a total of 8,413 deferred units vested
as a result of the retirement of one trustee and the resignation of
one executive. These deferred units were exchanged for an equivalent
number of Trust Units and cancelled.
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 142,625 6,194
Issue costs - (151)
Deferred unit plan - 1,275
Units issued for vested deferred units 8,413 400
Units purchased and cancelled (573,892) (26,361)
-------------------------
September 30, 2007 55,928,929 $ 347,101
-------------------------
-------------------------
Subsequent to June 30, 2007, Boardwalk REIT filed an application for
a normal course issuer bid (the "Bid"), which received regulatory
approval from the Toronto Stock Exchange on August 10, 2007. The Bid
allows Boardwalk REIT to purchase and cancel up to 4,267,048 trust
units, representing 10% of the public float of its trust units at the
time of the TSX approval. The Bid will terminate on the earlier of
one year from the date of commencement of the Bid on August 17, 2007
or at such time as purchases under the Bid are complete.
Under the Bid, the Trust has purchased and cancelled 573,892 REIT
units in the third quarter of 2007 representing a total market value
of approximately $26.4 million.
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 51,453,929
Special Voting Units issued to holders
of LP Class B units 4,475,000
-------------------------
Total trust units 55,928,929 $ 347,101
-------------------------
-------------------------
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 9 months 9 months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------
Total operating
cash flows $ 29,749 $ 29,198 $ 90,667 $ 66,929
Net change in
operating
working capital 4,302 (2,316) (4,098) (612)
Add:
Deferred
financing costs
amortization 1,081 768 3,460 2,237
Deduct:
Deferred
financing costs
amortization
post May 2, 2004 (642) (317) (1,591) (824)
Amortization of
net premium on
long-term debt
assumed after
May 2, 2004 (208) (11) (551) (34)
---------------------------------------------------------------------
Distributable
income $ 34,282 $ 27,322 $ 87,887 $ 67,696
Distribution
declared to
unitholders $ 22,525 $ 17,730 $ 65,391 $ 52,522
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average
units
outstanding -
basic and
diluted 55,900,390 56,277,684 55,856,690 55,279,021
Distributable
income earned
per unit $ 0.61 $ 0.485 $ 1.57 $ 1.225
Actual
distributions
declared per
unit $ 0.40 $ 0.315 $ 1.17 $ 0.950
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per unit
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------
Numerator
Earnings (loss)
from continuing
operations $ 10,158 $ 7,438 $ (88,482) $ 11,092
Earnings from
discontinued
operations $ 2,900 $ 64 $ 7,670 $ 7,768
---------------------------------------------------------------------
Denominator
Denominator for
basic earnings
per unit -
weighted
average units 55,900,390 56,277,684 55,856,690 55,279,021
---------------------------------------------------------------------
Denominator for
diluted
earnings per
unit adjusted
for weighted
average units
and assumed
conversion 55,900,390 56,277,684 55,856,690 55,279,021
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings (loss)
per unit from
continuing
operations
Basic $ 0.18 $ 0.13 $ (1.58) $ 0.20
Diluted $ 0.18 $ 0.13 $ (1.58) $ 0.20
---------------------------------------------------------------------
Earnings per
unit from
discontinued
operations
Basic $ 0.05 $ 0.00 $ 0.14 $ 0.14
Diluted $ 0.05 $ 0.00 $ 0.14 $ 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 January 1, 2011.
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------
Continuing
operations $ 2,055 $ 446 $ 113,453 $ 222
Discontinued
operations - - - -
---------------------------------------------------------------------
Total future
income taxes $ 2,055 $ 446 $ 113,453 $ 222
---------------------------------------------------
---------------------------------------------------
Future income taxes consist of the following:
3 months 3 months 9 months 9 months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------
Tax expense
based on
expected rate $ 345 $ 280 $ 494 $ 50
Adjustment to
future income
tax liabilities 1,710 166 112,959 172
---------------------------------------------------
Future income
taxes $ 2,055 $ 446 $ 113,453 $ 222
---------------------------------------------------
---------------------------------------------------
The future income tax asset (liability) is calculated as follows:
September 30, December 31,
As at 2007 2006
---------------------------
Tax asset related to operating losses $ 6 $ 294
Tax liability related to differences in
tax and book basis $ (113,149) 22
---------------------------------------------------------------------
Future income tax asset (liability) $ (113,143) $ 316
---------------------------
---------------------------
12. COMMITMENTS AND CONTINGENCIES
At September 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 fifteen
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
September 2006, Boardwalk REIT was eligible for estimated rebates
totalling approximately $1.4 million. For January to September 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
September 30, 2007 is approximately $5.3 million (September 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 September 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 9 months 9 months
ended ended ended ended
September September September September
30, 2007 30, 2006 30, 2007 30, 2006
---------------------------------------------------
Alberta
Revenue $ 55,679 $ 43,600 $ 158,687 $ 124,712
---------------------------------------------------
Expenses
Operating 7,745 6,823 24,011 19,904
Utilities 4,929 3,498 16,693 14,224
Utility
rebates - - (930) (1,384)
Property
taxes 3,379 2,967 9,961 9,399
---------------------------------------------------------------------
16,053 13,288 49,735 42,143
---------------------------------------------------
Net operating
income $ 39,626 $ 30,312 $ 108,952 $ 82,569
---------------------------------------------------
Saskatchewan
Revenue $ 9,941 $ 8,933 $ 28,573 $ 26,347
---------------------------------------------------
Expenses
Operating 1,795 1,579 5,264 4,758
Utilities 898 886 3,420 3,646
Property
taxes 1,126 1,187 3,454 3,625
---------------------------------------------------------------------
3,819 3,652 12,138 12,029
---------------------------------------------------
Net operating
income $ 6,122 $ 5,281 $ 16,435 $ 14,318
---------------------------------------------------
Ontario
Revenue $ 9,276 $ 9,363 $ 28,064 $ 28,130
---------------------------------------------------
Expenses
Operating 1,418 1,540 4,455 4,657
Utilities 1,364 1,460 4,742 4,739
Property
taxes 1,753 1,846 5,275 5,373
---------------------------------------------------------------------
4,535 4,846 14,472 14,769
---------------------------------------------------
Net operating
income $ 4,741 $ 4,517 $ 13,592 $ 13,361
---------------------------------------------------
British Columbia
Revenue $ 2,902 $ 2,151 $ 8,527 $ 5,939
---------------------------------------------------
Expenses
Operating 495 429 1,777 1,178
Utilities 219 235 1,058 684
Property
taxes 151 120 451 342
---------------------------------------------------------------------
865 784 3,286 2,204
---------------------------------------------------
Net operating
income $ 2,037 $ 1,367 $ 5,241 $ 3,735
---------------------------------------------------
Quebec
Revenue $ 17,475 $ 16,927 $ 51,588 $ 50,225
---------------------------------------------------
Expenses
Operating 3,141 3,196 9,978 10,116
Utilities 1,011 1,345 5,615 5,944
Property
taxes 1,869 1,906 5,651 5,397
---------------------------------------------------------------------
6,021 6,447 21,244 21,457
---------------------------------------------------
Net operating
income $ 11,454 $ 10,480 $ 30,344 $ 28,768
---------------------------------------------------
Total
Net operating
income $ 63,980 $ 51,957 $ 174,564 $ 142,751
Unallocated
revenue* 430 382 544 22,163
Unallocated
expenses(xx) (51,352) (44,837) (255,920) (146,054)
---------------------------------------------------------------------
Net earnings
(loss) for
the period $ 13,058 $ 7,502 $ (80,812) $ 18,860
---------------------------------------------------
---------------------------------------------------
September 30, December 31,
As at 2007 2006
--------------------------
Alberta
Identifiable assets
Revenue producing properties $ 1,245,671 $ 933,212
Mortgages and accounts receivable 710 1,249
Tenants' security deposit 10,581 7,988
--------------------------
$ 1,256,962 $ 942,449
--------------------------
Saskatchewan
Identifiable assets
Revenue producing properties $ 169,794 $ 172,269
Mortgages and accounts receivable 194 216
Tenants' security deposits 1,975 1,491
--------------------------
$ 171,963 $ 173,976
--------------------------
Ontario
Identifiable assets
Revenue producing properties $ 206,546 $ 208,927
Mortgages and accounts receivable 95 124
--------------------------
$ 206,641 $ 209,051
--------------------------
British Columbia
Identifiable assets
Revenue producing properties $ 103,440 $ 98,111
Mortgages and accounts receivable 1,296 37
Tenants' security deposits 441 408
--------------------------
$ 105,177 $ 98,556
--------------------------
Quebec
Identifiable assets
Revenue producing properties $ 419,750 $ 419,962
Mortgages and accounts receivable 1,075 859
--------------------------
$ 420,825 $ 420,821
--------------------------
Total assets
Identifiable assets $ 2,161,568 $ 1,844,853
Unallocated assets(xxx) 30,324 25,607
--------------------------
$ 2,191,892 $ 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 September 30, 2007, effective for unitholders on record
at and subsequent to November 30, 2007, Boardwalk REIT increased its
monthly trust unit distribution paid out to its unitholders from
$0.1333 (or $1.60 on an annualized basis) to $0.1500 (or $1.80 on an
annualized basis).
For further information please contact:
Boardwalk REIT
Sam Kolias,
CEO,
(403) 531-9255;
Roberto Geremia,
President,
(403) 531-9255;
