TSX SYMBOL: BEI.UN Feberuary, 2008
Boardwalk REIT Announces Solid Fourth Quarter and Full Year 2007 Financial
Results; FFO Per Unit Up 26.2% and DI Per Unit up 24.9% YOY; and its February
2008 Distribution
DOWNLOAD Q4-2007 February 14, 2008 PRESS RELEASE (Printer Friendly PDF File)
SUPPLEMENTAL NOTES - Q4-2007 February 14, 2008 (Printer Friendly PDF File)
CALGARY, Feb. 14 /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 both the fourth quarter
of 2007 and fiscal 2007; FFO per unit up 22.7% and DI per unit up 19.6% for
the fourth quarter of 2007 compared to the same period last year and FFO per
unit up 26.2% and DI per unit up 24.9% YOY. During fiscal 2007, the Trust
acquired a total of 2,421 residential units in Western Canada.
For the fourth quarter ended December 31, 2007, the Trust reported Funds
From Operations(1) ("FFO") of $29.9 million and FFO per unit of $0.54 on a
diluted basis, compared to FFO of $25.0 million and FFO per unit of $0.44 for
the same period last year. Distributable income ("DI") for the quarter was
$30.8 million and DI per unit was $0.55 on a diluted basis, compared to
$25.9 million and $0.46 per unit for the same period last year.
Highlights of the Trust's fourth quarter 2007 financial results include:
- Rental revenues of $99.0 million, an increase of 18.4%, compared to
$83.6 million for the three-month period ended December 31, 2006.
- Net operating income of $61.6 million, representing a 22.0% increase,
from $50.5 million in the same period last year.
- FFO of $29.9 million, an increase of 19.6%, compared to $25.0 million
for the three-month period ended December 31, 2006.
- FFO per unit was $0.54 on a diluted basis, up 22.7%, compared to
$0.44 for the three-month period ended December 31, 2006.
- DI was $0.55 per unit, up 19.6%, from $0.46 for the three months
ended December 31, 2006.
Highlights of the Trust's financial results for fiscal 2007 include:
- Rental revenues of $375.0 million, an increase of 17.4% compared to
$319.4 million for the twelve-month period ended December 31, 2006.
- Net operating income of $235.5 million, representing a 22.6% increase
from $192.1 million in the same period last year.
- FFO from continuing operations of $116.5 million, an increase of
27.5% compared to $91.4 million for the twelve-month period ended
December 31, 2006.
- FFO per unit from continuing operations of $2.07 on a diluted basis,
up 26.2% compared to $1.64 for the twelve-month period ended
December 31, 2006.
- DI from continued operations was $2.11 per unit, up 24.9% compared to
$1.69 for the twelve months ended December 31, 2006.
Commenting on the Trust's Q4 and fiscal 2007 results, Sam Kolias, C.E.O.
and Chairman of the Board, said: "Fiscal 2007 was an impressive year for
Boardwalk REIT. The geographic diversity of our portfolio, strong market
fundamentals, and our ability to nimbly adapt to change resulted in an
excellent year with outstanding growth. Throughout the 2007 year, we embraced
the challenge of meeting and exceeding the exceptional results that we
achieved in fiscal 2006. We are pleased that our efforts produced another
solid year in 2007."
"Over the fourth quarter, in-place occupied rents continued to rise.
Across the portfolio, occupied rent increased $32, or 3.5%, from approximately
$915 per suite at the end of Q3 2007 to approximately $947 per suite at the
end of Q4 2007. Year-over-year occupied rent increased approximately $96 per
suite for the entire portfolio. Despite increasing occupied rents, a decline
in market rents and occupancy was noted over the fourth quarter, reflecting a
typical weaker winter season. It is too early to gauge if the trend of
decreasing market rents will extend beyond the normal seasonal winter cycle
into the spring and summer months. For the entire portfolio, market rents
decreased $42, from approximately $1096 per suite at the end of Q3 2007 to
$1054 per suite at the end of Q4 2007. Corresponding with the seasonal
decrease in market rents, our mark-to-market per suite (representing the
difference between actual rental rates obtained and potential rental revenue
based on market rental rates) also declined slightly over the fourth quarter.
Across our portfolio, our mark-to-market decreased from approximately $189 per
suite at the end of Q3 2007 to $95 per suite at the end of Q4 2007. As a
result, the annualized total mark-to-market gap decreased from $78.5 million
at the end of Q3 2007 to $39.4 million at the end of Q4 2007, adjusted for
current vacancy. This decrease can be attributed to both an increase in
occupied rents, as well as a decrease in market rents. Despite the decline,
the gap between in-place and market rents remains significant."
"Our strategy of adjusting market rent allows us to maximize revenues by
creating the most economically beneficial balance of occupancy and rent
levels. As maximizing revenues is a balancing act of price, supply and demand,
we continue to monitor our markets on a constant basis, adjusting rents and
incentives with agility and market sensitivity. It is not uncommon for us to
adjust market rents, based on market demand for rentals over a short period of
time. We are optimistic that we will make strides towards closing the
mark-to-market gap in 2008. In 2007, legislation passed by the government of
Alberta limited rental increases for current Customers to once a year. Due to
the retroactive nature of the legislation, our ability to close our
mark-to-market gap through rental increases was temporarily reduced in 2007.
However, as of January 2008, the majority of our existing Alberta Customers
were eligible for monthly rent increase notices up to our internal maximum
increase of $150, a significant stride towards realizing this mark-to-market
gap. After this adjustment, over half of the rental rates of in-place
Customers will still be well below market rates."
"Our Saskatchewan markets, which make up 13% of our portfolio, had a very
positive quarter and a particularly impressive year. With strong activity in
the energy sector, record population and employment growth, rising house
prices, and an influx of inter-provincial migration, demand for rental housing
in Saskatchewan is strong. Average market rents were up approximately $15 per
suite in Saskatchewan at the end of Q4 2007 over Q3 2007 and up approximately
$224 per suite year-over-year. In-place occupied rents in the province
increased $53, from $729 per suite at the end of Q3 2007 to $782 per suite at
the end of Q4 2007. Carrying momentum from a strong finish to 2007, analysts
predict that 2008 will be another notable year for the province."
"Our Alberta markets, which make up 54% of our portfolio, continued to
generate solid growth for the Trust over the fourth quarter and for the 2007
fiscal year. Though the growth rate of some market fundamentals tempered from
the extraordinary levels of 2006, most indicators remained at strong levels at
the close of the year. We are particularly pleased to note continued
investment in Alberta's Oil Sands, as well as strong employment growth in the
province. Despite strong results, occupancy rates in Edmonton decreased from
97.52% for Q4 of 2006 to 95.22% for Q4 of 2007. In Calgary, occupancy
decreased from 97.47% for Q4 of 2006 to 94.42% for Q4 of 2007. It should be
noted, however, that the occupancy rates posted at the end of 2006 were at an
unprecedented high level. In Calgary, average market rents decreased
approximately $100 per suite at the end of Q4 over Q3 2007. In Edmonton,
average market rents decreased approximately $113 per suite at the end of Q4
over Q3 2007; however, increased $101 per suite year-over-year. Despite the
decline in market rents, occupied rents increased $67 per suite in Calgary and
$61 per suite in Edmonton at the end of Q4 over Q3 2007. We believe that there
is still room for growth in Alberta at a more sustainable and balanced pace.
We continue to maximize revenues by constantly adjusting market rents while
maintaining acceptable occupancy levels."
Operational Highlights
The average vacancy rate across the Trust's portfolio for the fourth
quarter of 2007 was 4.69%, up from 3.93% in the third quarter of 2007, and up
from 3.51% compared to the same period last year.
The average monthly rent on our entire portfolio realized in the fourth
quarter of 2007 was $903 per suite, up $83 from $820 per suite for the same
period last year.
The average market rent for the Trust's properties at the end of December
2007 was an estimated $1054 per suite per month, which compares to an average
in-place monthly rent per occupied suite of $947 for the quarter ended
December 31, 2007.
At the end of December 2007, the potential between occupied rents and
market rents (mark-to-market) totalled $39.4 million, or $0.71 per trust unit,
down from $78.5 million, or $1.39 per trust unit, at the end of September
2007.
More detail on our operations will be found in our conference call
presentation to be posted on our web site today at
http://www.boardwalkreit.com/FinancialReports/ The conference call audio for
this presentation can also be found on our web site at
http://www.boardwalkreit.com/FinancialReports/ following the call.
Same-Property Results
Boardwalk 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 December 31, 2007 showed rental revenue growth of
9.7% on a year-over-year basis. Operating expenses increased 0.6%, resulting
in an increase in NOI of 15.4% compared to the same period last year. The
"same-property" results for the twelve-month period ended December 31, 2007
showed rental revenue growth of 11.0% and an increase in total operating
expenses of 2.4%, resulting in an increase in NOI of 16.4% compared to the
same period last year. A total of 33,014 units, representing approximately
90.5% of Boardwalk's total portfolio, were classified as stabilized as at
December 31, 2007.
Same-Property Results - Stabilized Portfolio
Net
Operating Operating % of
No. of Revenue Expense Income Stabilized
Dec 31 2007 - 3 M Units Growth Growth Growth NOI
Calgary 4,973 10.1% 5.0% 12.1% 21%
Edmonton 10,369 16.2% 4.5% 23.1% 34%
Other Alberta 1,680 7.6% 16.6% 3.8% 6%
British Columbia 633 3.6% -16.1% 17.9% 2%
Ontario 4,265 0.3% -13.0% 13.7% 9%
Quebec 6,434 3.6% -4.1% 9.5% 17%
Saskatchewan 4,660 13.8% 8.5% 17.8% 11%
----------------------------------------------------
33,014 9.7% 0.6% 15.4% 100%
----------------------------------------------------
----------------------------------------------------
Net
Operating Operating % of
No. of Revenue Expense Income Stabilized
Dec 31 2007 - 12 M Units Growth Growth Growth NOI
Calgary 4,973 17.6% 4.2% 23.2% 21%
Edmonton 10,369 17.4% 8.9% 22.1% 34%
Other Alberta 1,680 12.6% 13.3% 12.3% 6%
British Columbia 633 8.1% -6.1% 16.0% 2%
Ontario 4,265 -0.1% -4.6% 4.7% 9%
Quebec 6,434 2.9% -3.5% 7.6% 18%
Saskatchewan 4,660 9.8% 2.5% 15.6% 10%
----------------------------------------------------
33,014 11.0% 2.4% 16.4% 100%
----------------------------------------------------
----------------------------------------------------
Commenting on Boardwalk's same-property results, President, Roberto
Geremia, said, "In the fourth quarter, we were pleased to see continued
revenue growth translating into a strong reported net operating income.
Boardwalk's Alberta and Saskatchewan portfolios continue to deliver growth."
The 2007 reported results were favourably impacted by Alberta natural gas
rebates in the amount totalling approximately $1.2 million compared to
approximately $2.0 million for the prior year. For a more detailed analysis of
the program, please visit the following Alberta provincial government website:
http://www.energy.gov.ab.ca
Sequential Revenue Analysis
-------------------------------------------------------------------------
Stabilized Revenue
Growth Q4 2007 vs. No. of Units Q3 2007 Q2 2007 Q1 2007
-------------------------------------------------------------------------
Calgary 4,973 0.4% 1.3% 5.6%
Edmonton 10,369 1.8% 5.7% 10.4%
Other Alberta 1,680 1.9% 2.7% 2.3%
British Columbia 633 -1.9% 0.7% 2.4%
Ontario 4,265 2.1% 0.6% 1.0%
Quebec 6,434 0.2% 2.4% 3.0%
Saskatchewan 4,660 4.6% 10.4% 12.9%
-------------------------------------------------------------------------
33,014 1.5% 3.9% 6.7%
-------------------------------------------------------------------------
Commenting on Boardwalk REIT's sequential stabilized revenue growth,
William Wong, Chief Financial Officer said, "Stabilized revenues reported for
the current quarter were up 6.7% comparing Q4 over Q1 2007, 3.9% comparing Q4
over Q2 2007, and 1.5% comparing Q4 over Q3 2007. Though stabilized revenue
growth tempered through the third and fourth quarters, mainly due to a change
in legislation in Alberta requiring a 12-month period between rental increases
(up from our previous 6-month period), 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 2007 (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
Acquisitions
Building Name City Closing Date Type Units
-------------------------------------------------------------------------
Ridgement Apartments Coquitlam, BC January 25, 2007 Low Rise 41
Oliver View/Manor
(St. Charles Pl/
Parkview) Edmonton, AB January 26, 2007 Walk Up 51
West Edmonton Village Edmonton, AB February 28, 2007 Various 1,176
Prairie Sunrise Tower Grande Walk Up/
Portfolio Prairie, AB March 14, 2007 Hi Rise 275
Springwood Place Spruce
Apartments Grove, AB May 28, 2007 Low Rise 160
Lakeview Apartments Calgary, AB September 20, 2007 Walkup 120
Highrise/
Whitehall Square Edmonton, AB September 24, 2007 Walkup 598
-------------------------------------------------------------------------
Total 2,421
-------
-------
Year 1 Avg.
Building Name Price Cap Rate $/Unit Sq.Ft. $/Sq.Ft.
-------------------------------------------------------------------------
Ridgement Apartments $ 3,700,000 5.03% $ 90,244 634 $ 142
Oliver View/Manor
(St. Charles Pl/
Parkview) $ 4,150,000 4.52% $ 81,373 795 $ 102
West Edmonton Village $143,500,000 5.47% $ 122,024 968 $ 126
Prairie Sunrise Tower
Portfolio $ 40,000,000 4.74% $ 145,455 831 $ 175
Springwood Place
Apartments $ 16,000,000 5.63% $ 100,000 767 $ 130
Lakeview Apartments $ 21,850,000 4.72% $ 182,083 897 $ 203
Whitehall Square $111,250,000 5.03% $ 186,037 913 $ 204
-------------------------------------------------------------------------
Total $340,450,000 5.22% $ 140,624 913 $ 154
---------------------------------------------------
---------------------------------------------------
Dispositions
Building Name City Closing Date Type Units
-------------------------------------------------------------------------
Oliver View/Manor
(St. Charles Pl/
Parkview) Edmonton, AB April 30, 2007 Walk Up 51
-------------------------------------------------------------------------
Total 51
-------
-------
Year 1 Avg.
Building Name Price Cap Rate $/Unit Sq.Ft. $/Sq.Ft.
-------------------------------------------------------------------------
Oliver View/Manor
(St. Charles Pl/
Parkview) $ 5,900,000 3.20% $ 115,686 795 $ 146
-------------------------------------------------------------------------
Total $ 5,900,000 3.20% $ 115,686 795 $ 146
---------------------------------------------------
---------------------------------------------------
Commenting on the Trust's property acquisitions and dispositions, Bill
Chidley, Senior Vice President, Corporate Development, said: "In 2007, the
Trust fulfilled its acquisition target by closing on 2,421 rental units in
British Columbia and Alberta. The acquisitions had a total purchase price of
340.5 million and, in aggregate, a going-in cap rate of 5.2%. The Trust had no
new acquisitions in the fourth quarter of 2007."
"During 2007, we increased our already large presence in the economically
strong province of Alberta. With reasonable cap rates and strong rental
fundamentals, our 2007 Alberta acquisitions make a welcome contribution to the
strength of the Trust's property portfolio. In 2007, we closed on six Alberta
properties, located in Edmonton, Calgary, Spruce Grove, and Grande Prairie. In
2007, we also conducted one disposition in Edmonton, Alberta of a 51-unit
walk-up, and also sold and closed 50 units in a 90-unit property located in
Calgary, Alberta that is being developed into condominium units for sale. The
50 condominium units sold and closed in 2007 is not included in the
disposition table noted above."
"The accretive acquisitions outlined above would not be possible without
our experienced team of acquisition professionals. Our team is able to act
with speed and confidence based on their ongoing due diligence, consisting of
intensive, building-by-building analysis in all major Canadian markets. By
consistently monitoring a property's surrounding area, background,
socio-economic motivators, and potential tenants, the Trust is able to
recognize and close on below-market-value deals."
New Apartment Development
In 2007, we began to explore the possibility of developing new
multi-family rental product in select markets in Western Canada, focusing on
several of our existing buildings in Calgary and Edmonton that feature excess
density. During the third quarter of 2007, the Trust completed a preliminary
densification study in Calgary. The planning consultants estimate that, in
Calgary, an additional density of 7,000 to 14,000 apartment units could be
achieved with re-zoning, the vast majority on 11 sites. In the fourth quarter,
these numbers were revisited and revised to 6,200 to 12,700 apartment units.
Over the fourth quarter, we continued our densification study in the
Edmonton area, focusing on two Edmonton properties - West Edmonton Village and
Viking Arms. We have also commissioned a densification study for Fort
McMurray. It is important to note that we are in the early stages of this
process, with the earliest completion of any new development between 2011 and
2012 which is 2.5 to four years away. As part of this investigation, we are
considering a number of ways to surface this densification value, including
direct development, joint venture, and the sale of excess density. Though we
are excited by this potential, it is important to note that in order 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. Boardwalk believes that being prepared for
all future opportunities is a key to our on-going success.
Alberta Royalty Review
On October 25, 2007, the Alberta Government announced changes to the
existing oil and gas royalty program. This new program, which will commence in
2009, 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 long-term impact of this decision on the Alberta economy has not yet
been determined; however, thus far, there has been no material pullback in Oil
Sands related projects. Optimism has been encouraged with the announcement of
several long-term sustaining investments in the Oil Sands after the new
Royalty Program was released. Of particular note is Suncor Energy's January
2008 announcement of a $20.6 billion expansion plan to boost crude oil
production in Alberta's Oil Sands. It is our continued belief that the high
price of oil will continue to encourage further investment, particularly in
the Alberta Oil Sands.
Bill C-52
On June 22, 2007, Bill C-52 received Royal Assent and as such became law.
This "Income Trust Law" set forth a number of tests that, if not met, would
strip the right of a trust to continue as a Specified Investment Flow-Through
("SIFT") tax-effective vehicle. In the legislation, there are specific
exemptions for real estate investment trusts ("REITs"). Although we do believe
the spirit of the Legislation was to exclude all REITs, the actual detail of
the Bill is unclear on some issues that, if not corrected, may result in many
REITs, including Boardwalk REIT, not qualifying to continue as a REIT
effective January 1, 2011 in accordance with the definition stipulated in the
Legislation.
On December 20, 2007, the Canadian Federal Government proposed technical
changes to the current rules governing REITs. Proposed changes include the
removal of the 25% limit on foreign investment by REITs, as well as some
technical amendments, which clarified the uncertainty on whether most real
estate investment trusts will qualify as REITs as previously defined in Bill
C-52. These recently released modifications appear to have rectified the need
to re-structure to continue to qualify as a REIT. Although we have not seen
the details of the agreement, we view this proposal as a positive move towards
rectifying the uncertainty surrounding Bill C-52.
We continue to work with the Federal Government and other industry
organizations to address the issues surrounding Bill C-52. If these items are
rectified, the Trust will reverse the one-time non-cash charge recorded in Q2
of 2007 on our financial statements, which was updated at the end of the third
and fourth quarters of 2007. Until then, this non-cash charge will be reviewed
and adjusted, if necessary, on a quarterly basis. Unfortunately, we are not
able to provide any guidance on the likelihood or the expected timing of this
reversal.
Unit Buyback and Distribution Reinvestment Plan
Under the Normal Course Issuer Bid previously announced in 2007, as of
February 1, 2008, the Trust had repurchased a total of 1,013,212 trust units
representing a total market value of $44.9 million, or an average price of
$44.35 per trust unit.
Boardwalk's Board of Trustees has determined that, effective February 29,
2008, the Trust will be suspending its Distribution Reinvestment Plan (the
"Plan"). The Plan was originally put in place as part of the conversion to a
real estate investment trust in May of 2004. The Plan provided an efficient
and cost-effective equity to support the Trust's financing of its strategic
plan implementation. Given the current liquidity condition, the Trust finds it
no longer requires this source of funding at this time. The Trust may
reinstate the Plan in the future, if required to fund new investing
activities. The suspension of the Plan does not affect regular distributions
and Unitholders will continue to receive such distributions as declared.
Continued Financial Strength
The Trust strengthened its financial position through 2007 due to lower
interest rates. We remain focused on maintaining a strong and healthy balance
sheet. Boardwalk's total mortgage and long-term debt was $1.88 billion as at
December 31, 2007, compared to $1.50 billion at December 31, 2006. As at
December 31, 2007, the Trust's total debt had an average term maturity of
3 years with a weighted average interest rate of 5.11%. The Trust's
debt-to-total-market-capitalization ratio was approximately 43.2%. The Trust's
interest coverage ratio of adjusted EBITDA (i.e. earnings before interest,
taxes, depreciation and amortization) to interest expense, after excluding
gains, was 2.25 times for the three months ended December 31, 2007, compared
to 2.29 times for the same period last year. During the fourth quarter of
2007, Boardwalk successfully completed approximately $420 million in mortgage
refinancings and renewals.
Outlook and 2008 Financial Guidance
Commenting on the outlook for the Trust, Roberto Geremia, President,
said, "We are confirming our previously announced fiscal 2008 guidance for FFO
and Distributable Income of between $2.35 to $2.50 and $2.37 to $2.52,
respectively. These forecasts are based on the assumptions of achieving
approximately 8.0% - 14.0% in stabilized NOI growth and new property
acquisitions of between 1,000 to 2,000 new residential units for the year. In
accordance with the Trust's current policy, management will update the market
on our Annual 2008 Guidance on a quarterly basis." The reader is cautioned
that this information is forward-looking information and actual results may
vary materially from those reported.
February 2008 Monthly Distribution
The Trust has declared its February 2008 distribution in the amount of
15.00 cents per trust unit ($1.80 on an annualized basis). The February
distribution will be payable on March 17, 2008 to unitholders of record on
February 29, 2008.
Supplementary Information
Boardwalk produces Quarterly Supplemental Information that provides
detailed information regarding the Trust's activities during the quarter. The
Fourth Quarter 2007 Supplemental Information is available on our investor
website at www.boardwalkreit.com.
Teleconference on Fourth 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 fourth 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
403-206-6758 or by email to investor@bwalk.com.
Teleconference: The telephone numbers for the conference are: (416)
644-3415 (within Toronto) or toll-free (800) 733-7560 (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=2128940
Replay: An audio recording of the teleconference will be available from
1:00 pm ET on Thursday, February 14, 2008 until 11:59 pm ET on Thursday,
February 21, 2008. You can access it by dialling 416-640-1917 and using the
passcode 21258069 followed by the pound (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 over 36,480 units totalling approximately 40 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)
December 31, December 31,
As at 2007 2006
--------------------------
Assets
Revenue producing properties (NOTE 4) $ 2,149,853 $ 1,836,429
Other assets (NOTE 7) 15,776 13,873
Future income taxes (NOTES 3 and 14) - 316
Mortgages and accounts receivable (NOTE 6) 10,071 4,388
Segregated tenants' security deposits 12,935 9,998
Cash and cash equivalents 960 -
Discontinued operations (NOTE 5) 6,293 5,456
-------------------------------------------------------------------------
$ 2,195,888 $ 1,870,460
--------------------------
--------------------------
Liabilities
Mortgages payable (NOTES 3 and 8) $ 1,770,015 $ 1,380,578
Debentures (NOTES 3 and 9) 118,768 118,448
Accounts payable and accrued liabilities 48,279 35,423
Refundable tenants' security deposits and other 16,186 13,102
Bank indebtedness - 4,042
-------------------------------------------------------------------------
1,953,248 1,551,593
Future income taxes (NOTES 3 and 14) 100,287 -
-------------------------------------------------------------------------
2,053,535 1,551,593
Unitholders' Equity
Unitholders' equity 142,353 318,867
-------------------------------------------------------------------------
$ 2,195,888 $ 1,870,460
--------------------------
--------------------------
Commitments and contingencies (NOTE 16)
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
COMPREHENSIVE INCOME (LOSS)
(CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS AND PER UNIT AMOUNTS)
Year ended Year ended
December 31, December 31,
2007 2006
--------------------------
Revenue
Rental income $ 375,012 $ 319,440
--------------------------
Expenses
Revenue producing properties:
Operating expenses 64,934 56,797
Utilities 43,504 40,443
Utility rebate (NOTE 2) (1,228) (2,032)
Property taxes 32,300 32,143
Administration 21,213 17,072
Financing costs 92,982 80,806
Deferred financing costs amortization 4,823 3,193
Amortization of capital assets (NOTE 2) 76,863 71,583
Amortization of intangibles (NOTE 2) 7,382 1,842
-------------------------------------------------------------------------
342,773 301,847
--------------------------
Earnings from continuing operations before
the following 32,239 17,593
Other income (NOTE 13) (755) (750)
-------------------------------------------------------------------------
Earnings from continuing operations before
income taxes 32,994 18,343
Large corporations taxes (recovery) 15 (30)
Future income taxes (NOTE 14) 100,597 613
-------------------------------------------------------------------------
Earnings (loss) from continuing operations (67,618) 17,760
Earnings from discontinued operations,
net of tax (NOTE 5) 8,292 7,629
-------------------------------------------------------------------------
Net earnings (loss) (59,326) 25,389
Other comprehensive income - -
--------------------------
Comprehensive income (loss) $ (59,326) $ 25,389
--------------------------
--------------------------
Basic earnings (loss) per unit (NOTE 12)
- from continuing operations $ (1.20) $ 0.32
- from discontinued operations 0.15 0.14
-------------------------------------------------------------------------
Basic earnings (loss) per unit $ (1.05) $ 0.46
--------------------------
--------------------------
Diluted earnings (loss) per unit (NOTE 12)
- from continuing operations $ (1.20) $ 0.32
- from discontinued operations 0.15 0.14
-------------------------------------------------------------------------
Diluted earnings (loss) per unit $ (1.05) $ 0.46
--------------------------
--------------------------
Weighted average number of units 56,248,879 55,542,918
--------------------------
--------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
(CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS)
Year ended Year ended
December 31, December 31,
2007 2006
--------------------------
Trust units (NOTE 11)
Balance, beginning of year $ 365,744 $ 295,696
Units issued under equity financing,
net of issue costs (151) 63,583
Units issued under distribution
reinvestment plan 8,917 5,784
Restructuring costs - (140)
Deferred unit plan (NOTE 10) 1,750 821
Units issued for vested deferred units (NOTE 10) 400 -
Units purchased and cancelled (NOTE 11) (38,576) -
-------------------------------------------------------------------------
Balance, end of year $ 338,084 $ 365,744
--------------------------
Cumulative earnings
Balance, beginning of year $ 154,917 $ 129,528
Net earnings (loss) (59,326) 25,389
-------------------------------------------------------------------------
Balance, end of year $ 95,591 $ 154,917
--------------------------
Accumulated other comprehensive income
Balance, beginning of year $ - $ -
Other comprehensive income - -
-------------------------------------------------------------------------
Balance, end of year $ - $ -
--------------------------
Cumulative distributions to unitholders
Balance, beginning of year $ (201,794) $ (129,482)
Distributions declared to unitholders (NOTE 12) (89,528) (72,312)
-------------------------------------------------------------------------
Balance, end of year $ (291,322) $ (201,794)
--------------------------
Total unitholders' equity $ 142,353 $ 318,867
--------------------------
--------------------------
Units issued and outstanding (NOTE 11) 55,708,934 56,351,783
--------------------------
--------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CDN$ THOUSANDS)
Year ended Year ended
December 31, December 31,
2007 2006
--------------------------
Operating activities
Net earnings (loss) $ (59,326) $ 25,389
Earnings from discontinued operations,
net of tax (8,292) (7,629)
Future income taxes 100,597 613
Amortization of capital assets 76,863 71,583
Amortization of intangibles 7,382 1,842
Amortization of deferred financing costs 4,823 3,193
Other income (NOTE 13) (755) (750)
-------------------------------------------------------------------------
121,292 94,241
Cash from discontinued operations (8) 308
Net change in operating working capital 6,419 4,458
-------------------------------------------------------------------------
Total operating cash flows 127,703 99,007
--------------------------
Financing activities
Issuance of trust units (net of issue costs)
(NOTE 11) 8,766 69,367
Restructuring costs - (140)
Distributions paid (88,144) (70,952)
Unit repurchase program (NOTE 11) (38,576) -
Financing of revenue producing properties 795,429 67,605
Repayment of debt on revenue producing
properties (419,543) (72,987)
Deferred financing costs incurred (21,471) (3,564)
-------------------------------------------------------------------------
236,461 (10,671)
--------------------------
Investing activities
Purchases of revenue producing properties
(NOTE 4) (309,313) (85,812)
Improvements to revenue producing properties (71,528) (37,448)
Net cash proceeds from sale of properties
(NOTE 4) 21,974 20,274
Net cash proceeds from extinguishment of option
to acquire property - 750
Net cash proceeds from forfeiture of deposit 755 -
Additions to corporate technology assets (1,050) (1,287)
-------------------------------------------------------------------------
(359,162) (103,523)
--------------------------
Net increase (decrease) in cash and cash
equivalents balance 5,002 (15,187)
Cash and cash equivalents (bank indebtedness),
beginning of year (4,042) 11,145
-------------------------------------------------------------------------
Cash and cash equivalents (bank indebtedness),
end of year $ 960 $ (4,042)
--------------------------
--------------------------
Supplementary cash flow information:
Capital taxes paid $ 15 $ 120
Interest paid $ 90,056 $ 81,129
--------------------------
--------------------------
Year ended Year ended
December 31, December 31,
2007 2006
--------------------------
Net change in operating working capital:
Net change in mortgages and accounts
receivable $ (5,683) $ 4,651
Net change in other assets (901) (3,318)
Net change in tenant security deposits 147 (102)
Net change in accounts payable and accrued
liabilities 12,856 3,227
--------------------------
$ 6,419 $ 4,458
--------------------------
--------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2007 AND 2006
(TABULAR AMOUNTS IN CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS AND PER UNIT
AMOUNTS UNLESS OTHERWISE STATED)
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. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These consolidated financial statements have been prepared in
accordance with the recommendations of the handbook of the Canadian
Institute of Chartered Accountants ("CICA Handbook").
The preparation of financial statements in accordance with Canadian
generally accepted accounting principles ("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.
(b) Principles of consolidation
The consolidated financial statements include the accounts of
Boardwalk REIT and its wholly-owned subsidiaries, as well as entities
over which it exercises control on a basis other than ownership of
voting interests in accordance with CICA Handbook Accounting
Guideline 15 (AcG-15), Consolidation of Variable Interest Entities.
All inter-company transactions have been eliminated.
(c) Revenue recognition
i. Revenue from a rental property is recognized once the
Trust has attained substantially all of the benefits and
risks of ownership of the rental property. Rental revenue
includes rents, parking and other sundry revenues. The
majority of the residential leases are for one-year terms
or less; consequently, the Trust accounts for leases with
its tenants as operating leases.
ii. Revenue from the disposition of property held for sale,
or redevelopment and sale, is recognized when all
conditions of the purchase and sale agreement have been
met, a sufficient purchaser deposit (usually 15%) has
been received and there is reasonable assurance on the
collectibility of any outstanding amount.
(d) Revenue producing properties
Revenue producing real estate properties, which are held for
investment, are stated at the lower of cost less accumulated
amortization or "net recoverable amount". Cost includes all amounts
relating to the acquisition and improvement of the properties. All
costs associated with upgrading the existing facilities, other than
ordinary repairs and maintenance, are capitalized and amortized as
project improvements.
Revenue producing properties and intangible assets are reviewed
periodically for impairment. An impairment loss will be recognized in
the period when the carrying amount of the revenue producing
properties exceeds the net recoverable amount represented by the
undiscounted estimated future cash flows expected to be received from
the ongoing use of the properties plus their residual value. If it is
determined that an impairment exists, the carrying value of the
revenue producing properties and intangible assets will be reduced to
their estimated fair value.
In accordance with the requirements of the CICA Handbook, when
acquiring revenue producing properties, Boardwalk REIT allocates a
portion of the purchase price to in-place operating leases that are
acquired in connection with the real estate property and to a
separate customer relationship intangible asset relating to the
possibility or probability that existing tenants will renew their
leases.
(e) Amortization of capital assets
Revenue producing real estate properties are amortized over the
estimated useful lives of the assets. Revenue producing building
assets are amortized using the straight-line method over periods
ranging from 40 to 50 years. Non-building assets are amortized using
the declining-balance method at rates ranging from 8% to 35%.
Estimated useful lives of buildings and non-building assets are
periodically evaluated by management and any changes in these
estimates are accounted for on a prospective basis.
(f) Amortization of intangibles
The value allocated to in-place operating leases when revenue
producing properties are purchased by the Trust, is amortized over a
twelve-month period.
(g) Deferred financing costs
Insurance premiums paid to Canada Mortgage and Housing Corporation
("CMHC") to obtain insurance through the National Housing Act ("NHA")
are amortized on a straight-line basis over the insured term of the
mortgage loans. Upon the refinancing of a mortgage, any unamortized
insurance premium associated with the previous mortgage is written
off to income. Transaction costs related to refinancing are amortized
on a straight-line basis over the term of the new loan.
(h) Deferred unit plan
The deferred unit plan is described in NOTE 10. Deferred units
granted to trustees and executives in respect of their trustee fees
and bonuses, respectively, are considered to be in respect of past
services and are recognized in compensation expense upon grant.
Deferred units granted relating to amounts matched by the Trust are
considered to be in respect of future services and are recognized in
compensation expense on a straight-line basis over the vesting
period. Compensation cost is measured based on the market price of
the Trust's units on the date of grant of the deferred units. The
unvested deferred units (and vested deferred units that have not been
exchanged for Trust Units) earn additional deferred units for the
distributions that would otherwise have been paid on the deferred
units had they instead been issued as Trust Units on the date of
grant (or the date they were exchangeable for Trust Units). No
additional compensation cost is recorded for additional deferred
units issued. Deferred units that have vested, but for which the
corresponding Trust Units have not been issued and where the ultimate
issuance of such Trust Units is simply a matter of the passage of
time, are considered to be outstanding units from the date of vesting
for basic and diluted earnings per unit calculations.
(i) Risk management and fair value
Risk management
The Trust is exposed to financial risk that arises from the
fluctuation in interest rates, the credit quality of its tenants, and
the fluctuation in utility rates. These risks are managed as follows:
i. Interest rate risk
Interest rate risk is minimized through the Trust's
current strategy of having the majority of its mortgages
payable in fixed term arrangements. In addition,
management is constantly reviewing its operating facility
and, if market conditions warrant, the Trust has the
ability to convert its existing demand debt to fixed rate
debt. The Trust had demand debt outstanding of
$1.2 million at December 31, 2007 (December 31, 2006 -
$6.2 million). In addition, the Trust structures its
financings so as to stagger the maturities of its debt,
thereby minimizing the Trust's exposure to interest rates
in any one year.
The majority of the Trust's mortgages are insured by CMHC
under the NHA mortgage program. This added level of
insurance offered to lenders allows the Trust to receive
the best possible financing and interest rates, and
significantly reduces the potential for a lender to call
a loan prematurely.
ii. Credit risk
Credit risk arises from the possibility that tenants may
experience financial difficulty and be unable to fulfill
their lease term commitments. The Trust mitigates this
risk of credit loss by geographically diversifying its
existing portfolio, by limiting its exposure to any one
tenant and by conducting thorough credit checks with
respect to all new rental leasing arrangements. In
addition, where legislation allows, the Trust obtains a
security deposit from a tenant to assist in the recovery
of monies owed to the Trust.
iii. Utilities
At December 31, 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 twelve 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, with the program to 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 March 2007, Boardwalk REIT was
eligible for estimated rebates totalling approximately
$0.9 million. For October through December 2007,
Boardwalk REIT was eligible for estimated rebates
totalling $0.3 million. For January to March 2006,
Boardwalk REIT was eligible for rebates totalling
approximately $1.4 million. For October through December
2006, Boardwalk REIT was eligible for rebates totalling
approximately $0.6 million.
As at December 31, 2007, the Trust also had one natural
gas supply contract, which provides a degree of price
certainty for natural gas usage in the province of
Saskatchewan. The contract covers between 75 - 100% of
the Trust's natural gas requirements for this province.
The physical supply agreement for Saskatchewan covered
the period from November 1, 2006 to October 31, 2007 and
has been extended to October 31, 2008. The supply
contract provides the commodity at a price of $8.95/GJ.
While the above utility contracts reduce the risk of
exposure to adverse changes in commodity prices, they
also reduce the potential benefits of favourable changes
in commodity prices. For accounting purposes, all
settlements are recorded as utility expense in the period
the settlement occurs.
Fair Value
In accordance with the disclosure requirements of the CICA Handbook,
Boardwalk REIT is required to disclose certain information concerning
its "financial instruments", defined as a contractual right to
receive or deliver cash or another financial asset. The fair values
of the majority of the Trust's short-term financial assets and
liabilities, such as mortgages and accounts receivable, tenants'
security deposits, accounts payable and accrued liabilities and cash
or bank indebtedness, approximate their recorded values at
December 31, 2007 and 2006 due to their short-term nature. In these
circumstances, the fair value is determined to be the market or
exchange value of the assets or liabilities.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could
significantly affect estimates. The significant financial instruments
of Boardwalk REIT and their carrying values as of December 31, 2007
and 2006 are as follows:
December 31, December 31,
AS AT 2007 2006
--------------------------
Mortgages and accounts receivable
Carrying value $ 10,071 $ 4,388
Fair market value $ 10,071 $ 4,388
---------------------------------------------------------------------
Mortgages payable and debentures
Carrying value 1,888,783 $ 1,499,026
Fair market value 1,900,096 $ 1,532,259
The fair value of the Trust's mortgages payable and debentures
exceeded the recorded value by approximately $11.3 million at
December 31, 2007, while the fair value of the mortgages payable
exceeded the carrying value at December 31, 2006 by $33.2 million,
due to changes in interest rates since the dates on which the
individual mortgages and debentures were assumed. The fair value of
the mortgages payable and debentures have been estimated based on the
current market rates for mortgages and debentures with similar terms
and conditions. The fair value of the Trust's mortgages payable and
debentures is an amount computed based on the interest rate
environment prevailing at December 31, 2007 and 2006, respectively;
the amount is subject to change and the future amounts will converge.
There are no additional costs or penalties to Boardwalk REIT if the
mortgages and debentures are held to maturity.
(j) Use of estimates
The accounting process requires that management make, and
periodically review, a number of estimates including the following
material items:
i. economic useful life of buildings for purposes of
calculating amortization as disclosed in NOTE 2 (e);
ii. forecast of economic indicators in order to measure fair
values of buildings for purposes of determining net
recoverable amount under Canadian generally accepted
accounting principles as discussed in NOTE 2 (d);
iii. amount of capitalized on-site wages which relate to
project improvements, as discussed in NOTE 4; and
iv. amount of utility accrual for charges related to the
current period.
Actual results may differ from these estimates.
(k) Cash and cash equivalents
Boardwalk REIT considers highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(l) Disposal of long-lived assets
Disposal of long-lived assets are classified as held for sale or
redevelopment, and the results of operations and cash flows
associated with the assets disposed are reported separately as
discontinued operations, less applicable income taxes. A long-lived
asset is classified as an asset held for sale or redevelopment at the
point in time when it is available for immediate sale, management has
committed to a plan to sell the asset and is actively locating a
buyer for the asset at a sales price that is reasonable in relation
to the current fair value of the asset, and the sale is probable and
expected to be completed within a one-year period. For unsolicited
interest in a long-lived asset, the asset is classified as held for
sale only if all the conditions of the purchase and sale agreement
have been met, a sufficient purchaser deposit has been received and
the sale is probable and expected to be completed shortly after the
end of the current period.
A long-lived asset classified as held for sale or redevelopment is
measured at the lower of its carrying value and fair value less cost
to sell. No amortization is recorded while it is classified as held
for sale or redevelopment. Interest and other expenses attributable
to the long-lived asset held for sale continue to be accrued.
The carrying value of long-lived assets classified as held for sale
or redevelopment are segregated on the balance sheet as "Discontinued
Operations" and the earnings and cash flows associated with these
assets are presented separately on the statement of earnings and
comprehensive income (loss) as line item "Earnings from discontinued
operations, net of tax". For comparative purposes, the prior year's
financial information has also been restated to reflect the
reclassification of these assets.
(m) Hedging relationships
Boardwalk REIT appropriately documents and monitors to ensure that
there is a reasonable assurance, both in inception and throughout the
term of the hedge, that the hedging relationship will be effective.
Relationships that do not qualify for hedge accounting will be
carried at fair value on the consolidated balance sheets, and changes
in fair value will be recorded in the consolidated statements of
earnings and comprehensive income. Hedge accounting was applied to a
bond forward contract (see NOTE 9) entered into by the Trust to mitigate
future cash interest payments associated with our unsecured debentures,
which was completed on January 21, 2005. Hedge accounting will also
be applied to bond forward transaction completed subsequent to the
fiscal year end (see NOTE 19).
(n) Disclosure of guarantees
In accordance with the disclosure requirements of the CICA Handbook,
Boardwalk REIT is required to disclose significant details of
guarantees that have been given, regardless of whether it will have
to make payments under the guarantees (see NOTE 17).
(o) Comparative figures
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:
December 31, December 31,
2007 2006
--------------------------
Mortgages Payable
Principal outstanding as previously
reported $ 1,827,793 $ 1,420,701
Unamortized deferred financing costs as
previously reported (58,821) (41,853)
Unamortized mark-to-market adjustment as
previously reported 1,043 1,730
---------------------------------------------------------------------
$ 1,770,015 $ 1,380,578
--------------------------
--------------------------
Debentures
Principal outstanding as previously
reported $ 120,000 $ 120,000
Unamortized deferred financing costs as
previously reported (1,232) (1,552)
---------------------------------------------------------------------
$ 118,768 $ 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.
In late December of 2007, the Federal Government announced its
intention to make technical amendments to Bill C-52, in particular,
amendments clarifying the definition of a REIT, which is exempted
from the specified investment flow-through ("SIFT") rules. In
particular, it is proposed that revenue of a subsidiary trust will be
treated as revenue from real property.
Impact of Bill C-52 and Related Ammendments
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 SIFT rules, and as such has recorded an
estimate of its future income tax liability at June 30, 2007 and
subsequently updated at December 31, 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 and revised
downward by $12.9 million to $99.9 million at December 31, 2007.
Although the adjustment to earnings and cumulative earnings at
December 31, 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 December 31, 2007, the technical amendments announced in late
December 2007 had not received Royal Assent. However, if these
amendments receive Royal Assent, as was the case with Bill C-52, it
is believed that Boardwalk REIT would qualify as a REIT and will
reverse the future income tax liability reported in these financial
statements.
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 five new accounting standards that
are effective for the Trust's fiscal year commencing January 1, 2008,
except for Section 3064, which is effective for the Trust's fiscal
year commencing January 1, 2009:
a) Section 1535 - Capital Disclosures
b) Section 3031 - Inventories
c) Section 3064 - Goodwill and Intangible Assets
d) Section 3862 - Financial Instruments-Disclosure
e) 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 3031 - Inventories, which will replace Section 3030 -
Inventories, provides guidelines on the measurement and costing of
inventories, as well as allows for the reversal of inventory values
previously written-down. This new section also enhances disclosure
requirements for inventory to include accounting policies and
carrying amounts used to value inventory, inventory amounts
recognized as an expense and disclosure of any write-downs or the
reversal of any inventory write-downs previously recorded.
Section 3064 - Goodwill and Intangible Assets, which replaces Section
3062 - Goodwill and Other Intangible Assets and Section 3450 -
Research and Development Costs, establishes standards for the
recognition, measurement, presentation and disclosure of goodwill
subsequent to its initial recognition and of intangible assets by
profit-oriented enterprises. Standards concerning goodwill remain
unchanged from the standards included in the previous Section 3062.
The new section will be applicable to financial statements relating
to fiscal years beginning on or after October 1, 2008.
Section 3862 - Financial Instruments-Disclosure and Section 3863 -
Financial Instruments-Presentation, which will replace Section 3861 -
Financial Instruments Presentation and Disclosure, revises and
enhances 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
As at December 31, December 31,
2007 2006
--------------------------
Land $ 214,575 $ 162,839
Building and non-building assets 2,455,085 2,117,315
---------------------------------------------------------------------
Total revenue producing properties 2,669,660 2,280,154
Less: accumulated amortization (513,514) (438,269)
---------------------------------------------------------------------
$ 2,156,146 $ 1,841,885
--------------------------
--------------------------
Continuing operations $ 2,149,853 $ 1,836,429
Discontinued operations (NOTE 5) 6,293 5,456
---------------------------------------------------------------------
$ 2,156,146 $ 1,841,885
--------------------------
--------------------------
Acquisitions
Year ended Year ended
December 31, December 31,
2007 2006
--------------------------
Cash paid $ 309,313 $ 85,812
Debt assumed 31,209 3,539
---------------------------------------------------------------------
Total purchase price 340,522 89,351
Fair value adjustments to debt 376 19
---------------------------------------------------------------------
Book value $ 340,898 $ 89,370
--------------------------
--------------------------
Allocation of book value to revenue
producing properties $ 331,035 $ 86,338
Allocation of book value to other assets
(NOTE 2 (d)) 9,863 3,032
---------------------------------------------------------------------
$ 340,898 $ 89,370
--------------------------
--------------------------
Multi-family units acquired 2,421 1,103
--------------------------
--------------------------
Included in revenue producing properties is capitalized wages of
$6.8 million for the year ended December 31, 2007 (December 31, 2006
- $3.9 million) relating to capital upgrades.
Dispositions
Year ended Year ended
December 31, December 31,
2007 2006
--------------------------
Cash received $ 21,974 $ 20,274
Cost of dispositions 125 426
---------------------------------------------------------------------
Total proceeds 22,099 20,700
Net book value 13,767 13,173
---------------------------------------------------------------------
Gain on dispositions $ 8,332 $ 7,527
--------------------------
--------------------------
Multi-family units sold 101 196
--------------------------
--------------------------
Included in dispositions were the sales and closings of 50 units in a
90-unit property located in Calgary, Alberta that is being developed
into condominium units for sale (see NOTE 5). Under the percentage of
completion method, sales of $16.2 million for the year ended
December 31, 2007 (December 31, 2006 - $nil) were recorded against
cost of sales of $9.5 million (December 31, 2006 - $nil).
5. DISCONTINUED OPERATIONS
During the third quarter of 2007, it was determined by the purchaser
that the plan to purchase a 108-unit property in Edmonton, Alberta
owned by Boardwalk would not proceed. As a result, this building was
reclassified as part of continuing operations with no loss recognized
(see NOTE 13). 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.
Year ended Year ended
December 31, December 31,
2007 2006
--------------------------
Revenue
Rental income $ 219 $ 1,167
--------------------------
Expenses
Revenue producing properties:
Operating expenses 99 186
Utilities 41 167
Utilities rebate (5) (16)
Property taxes 25 96
Administration 54 42
Financing costs 13 208
Deferred financing costs amortization - 176
Amortization of capital assets 32 206
---------------------------------------------------------------------
259 1,065
--------------------------
(40) 102
Gain on dispositions 8,332 7,527
---------------------------------------------------------------------
Operating earnings from discontinued
operations before income taxes 8,292 7,629
Future income taxes - -
---------------------------------------------------------------------
Earnings from discontinued operations $ 8,292 $ 7,629
--------------------------
--------------------------
As at December 31, December 31,
2007 2006
--------------------------
Discontinued Assets
Properties held for redevelopment and
sale $ 6,293 $ 5,456
--------------------------
--------------------------
6. MORTGAGES AND ACCOUNTS RECEIVABLE
The mortgages and accounts receivable comprise an aggregate amount of
$10.1 million at December 31, 2007 (December 31, 2006 -
$4.4 million). The balance consists mainly of mortgage holdbacks,
refundable mortgage fees and amounts owed to Boardwalk REIT by
customers.
As at December 31, December 31,
2007 2006
--------------------------
Accounts receivable $ 5,197 $ 4,388
Mortgage holdbacks and refundable mortgage
fees 4,874 -
---------------------------------------------------------------------
$ 10,071 $ 4,388
--------------------------
--------------------------
7. OTHER ASSETS
As at December 31, December 31,
2007 2006
--------------------------
Corporate technology assets (net of
accumulated amortization) $ 3,100 $ 3,436
Head office building (net of accumulated
amortization) 2,307 2,329
Deposits on potential property acquisitions - 814
Prepaid parts and supplies 2,791 2,097
In-place lease and customer relationship
intangibles (net of accumulated
amortization) 3,686 1,271
Prepaid property taxes 1,312 1,193
Prepaid and other 2,580 2,733
---------------------------------------------------------------------
$ 15,776 $ 13,873
--------------------------
--------------------------
Accumulated amortization for corporate technology assets and head
office building at December 31, 2007 were $13.5 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 December 31, 2007
was $15.2 million (December 31, 2006 - $7.9 million).
8. MORTGAGES PAYABLE
As at December 31, December 31,
2007 2006
--------------------------
(a) Revenue producing properties
Mortgages payable bearing interest at
rates ranging between 3.5% and 8.85% per
annum with a weighted average rate of 5.11%
per annum at December 31, 2007 (December 31,
2006 - 5.31%), payable in monthly principal
and interest instalments totalling $13.4
million for the year ended December 31,
2007 (December 31, 2006 - $9.0 million),
mature from 2008 to 2020 and are secured
by specific charges against specific
properties. All interest rates are fixed
for the term of the respective mortgage. $ 1,768,389 $ 1,378,910
(b) Other assets
Mortgage payable bearing interest at the
rate of 7.92% per annum at December 31,
2007 and 2006, payable in monthly principal
and interest instalments totalling $15
thousand for the years ended December 31,
2007 and 2006, matures in September 2010 and
is secured by a specific charge against the
head office building. The interest rate is
fixed for the term of the mortgage. 1,626 1,668
---------------------------------------------------------------------
$ 1,770,015 $ 1,380,578
--------------------------
--------------------------
Estimated principal payments required to meet mortgage obligations as
at December 31, 2007 are as follows:
Revenue
Producing
Properties Other Assets Total
----------------------------------------
2008 $ 299,836 $ 48 $ 299,884
2009 284,268 53 284,321
2010 305,884 1,537 307,421
2011 131,361 - 131,361
2012 670,261 - 670,261
Subsequent 134,545 - 134,545
---------------------------------------------------------------------
$ 1,826,155 $ 1,638 $ 1,827,793
Unamortized deferred
financing costs (58,809) (12) (58,821)
Unamortized mark-to-market
adjustment 1,043 - 1,043
---------------------------------------------------------------------
$ 1,768,389 $ 1,626 $ 1,770,015
----------------------------------------
----------------------------------------
Estimated principal payments required to meet mortgage obligations as
at December 31, 2006 were as follows:
Revenue
Producing
Properties Other Assets Total
----------------------------------------
2007 $ 351,233 $ 45 $ 351,278
2008 238,836 48 238,884
2009 223,796 53 223,849
2010 262,470 1,537 264,007
2011 117,951 - 117,951
Subsequent 224,732 - 224,732
---------------------------------------------------------------------
$ 1,419,018 $ 1,683 $ 1,420,701
Unamortized deferred
financing costs (41,838) (15) (41,853)
Unamortized mark-to-market
adjustment 1,730 - 1,730
---------------------------------------------------------------------
$ 1,378,910 $ 1,668 $ 1,380,578
----------------------------------------
----------------------------------------
CMHC provides mortgage loan insurance in connection with mortgages
made to Boardwalk REIT. In an agreement dated September 13, 2002 and
as amended and restated on January 19, 2005 and April 25, 2006, the
Trust agreed to provide certain financial information to CMHC and be
subject to certain restrictive covenants, including limitation on
additional debt, payment of distributions in respect of unitholders'
capital in the event of default, and maintenance of certain financial
ratios. In the event of default, the Trust's total financial
liability under this Agreement is limited to a one-time penalty
payment of $250 thousand under a Letter of Credit issued in favour of
CMHC.
(c) Demand facilities
During the year, the Trust had a demand facility in the form of an
acquisition and operating line with a major financial institution.
This demand facility was secured by a first or second mortgage charge
of specific real estate assets. The maximum amount available varies
with the value of pledged assets to a maximum not to exceed
$200 million. Approximately $198.2 million was available from this
facility on December 31, 2007 (December 31, 2006 - $103.0 million).
The amount of $1.2 million of the facility was outstanding at
December 31, 2007 (December 31, 2006 - $6.2 million). In addition,
two Letters of Credit ("LC") were issued and outstanding against the
facility as at December 31, 2006. One LC was issued in favour of CMHC
as noted above. The second LC in the amount of $356 thousand was
issued in favour of the City of London. The demand facility carried
an interest rate ranging from prime to prime plus 1.0% per annum and
had no fixed terms of repayment. The facility was subject to annual
reviews by the financial institution.
9. 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 was 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. As at December 31, 2007, the Trust was in
compliance with all the covenants reported in the debenture.
10. DEFERRED UNIT PLAN
During 2006, the Trust implemented a deferred unit plan, which allows
Boardwalk REIT to issue a maximum number of deferred units equal to
1% of the Trust Units outstanding on a fully diluted basis. 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. The deferred units had a weighted average fair value of
$45.87 per unit at the grant date in 2007 (2006 - $25.48). Total
compensation costs of $1.8 million were recognized (2006 -
$0.8 million) in income related to employee and trustee 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 51,722 -
Additional deferred units earned
on unvested units 3.487 -
Deferred units cancelled (10,478) -
---------------------------------------------------------------------
December 31, 2007 118,477 -
---------------------------------------------------------------------
---------------------------------------------------------------------
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 along with the remaining
2,065 deferred units that were unvested.
11. 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 entitles 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 (NOTE 10) - 821
---------------------------------------------------------------------
December 31, 2006 56,351,783 365,744
Units issued under distribution
reinvestment plan 205,185 8,917
Issue costs - (151)
Deferred unit plan (NOTE 10) - 1,750
Units issued for vested deferred
units (NOTE 10) 8,413 400
Units purchased and cancelled (856,447) (38,576)
---------------------------------------------------------------------
December 31, 2007 55,708,934 $ 338,084
--------------------------
--------------------------
In the second quarter of 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 856,447 REIT
units in the year representing a total market value of approximately
$38.6 million, or an average of $45.04 per trust unit.
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 51,233,934
Special Voting Units issued to
holders of LP Class B units 4,475,000
---------------------------------------------------------------------
Total trust units 55,708,934 $ 338,084
--------------------------
--------------------------
12. 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 is 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.
Year ended Year ended
December 31, December 31,
2007 2006
--------------------------
Total operating cash flows $ 127,703 $ 99,007
Net change in operating working capital (6,419) (4,458)
Add:
Amortization of net discount on long-term
debt assumed after May 2, 2004 - 67
Deduct:
Deferred financing costs amortization
post May 2, 2004 (2,155) (1,007)
Amortization of net premium on long-term
debt assumed after May 2, 2004 (417) -
---------------------------------------------------------------------
Distributable income $ 118,712 $ 93,609
Distribution declared to unitholders $ 89,528 $ 72,312
Distributable income withheld $ 29,184 $ 21,297
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average units outstanding
- basic and diluted 56,248,879 55,542,918
Distributable income earned per unit $ 2.110 $ 1.685
Actual distributions declared per unit $ 1.592 $ 1.302
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per unit
Year ended Year ended
December 31, December 31,
2007 2006
--------------------------
Numerator
Earnings (loss) from continuing
operations $ (67,618) $ 17,760
Earnings from discontinued operations 8,292 7,629
---------------------------------------------------------------------
Denominator
Denominator for basic earnings per unit
- weighted average units (THOUSANDS) 56,249 55,543
Denominator for diluted earnings per unit
adjusted for weighted average units and
assumed conversion (THOUSANDS) 56,249 55,543
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings (loss) per unit from
continuing operations
Basic $ (1.20) $ 0.32
Diluted $ (1.20) $ 0.32
---------------------------------------------------------------------
Earnings per unit from
discontinued operations
Basic $ 0.15 $ 0.14
Diluted $ 0.15 $ 0.14
---------------------------------------------------------------------
---------------------------------------------------------------------
13. OTHER INCOME
In 2007, Boardwalk REIT had an agreement to sell a 108-unit property
located in Edmonton, Alberta to an unrelated third-party purchaser.
This sale did not proceed in accordance with the agreement, resulting
in the forfeiture of the buyer's deposit to Boardwalk REIT in the
amount of $755 thousand.
In 2006, Boardwalk REIT had an option to acquire a property with an
unrelated third-party, provided the first agreement to sell the
property to another purchaser was not consummated. This agreement to
sell the property to another purchaser was realized, resulting in a
gain to Boardwalk REIT of $750 thousand.
14. 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.
Year ended Year ended
December 31, December 31,
2007 2006
--------------------------
Total future income taxes $ 100,597 $ 613
--------------------------
--------------------------
Future income taxes consists of the following:
Year ended Year ended
December 31, December 31,
2007 2006
--------------------------
Tax expense based on expected rate $ 586 $ 455
Adjustment to future income tax liabilities 100,011 158
---------------------------------------------------------------------
Future income taxes $ 100,597 $ 613
--------------------------
--------------------------
The future income tax asset (liability)
is calculated as follows:
December 31, December 31,
As at 2007 2006
--------------------------
Tax asset (liability) related
to operating losses $ (90) $ 294
Tax asset (liability) related to
differences in tax and book basis (100,197) 22
---------------------------------------------------------------------
Future income tax asset (liability) $ (100,287) $ 316
--------------------------
--------------------------
15. RELAT