TSX SYMBOL: BEI.UN August 11, 2005
Boardwalk Announces Second Quarter Financial Results
DOWNLOAD Q2-2005 August 11, 2005 PRESS RELEASE (Printer Friendly PDF File - 338 Kb)
SUPPLEMENTAL NOTES - Q2-2005 (Printer Friendly PDF File - 765 Kb)
Calgary, Alberta – August 11, 2005
- Boardwalk Real Estate Investment Trust ("BEI.UN" - TSX)
Boardwalk Real Estate Investment Trust
("Boardwalk REIT" or the "Trust") today announced solid financial results for
the three-month and six-month periods ending June 30, 2005.
For the three-month period, the Trust reported Funds From Operations ("FFO")
of $18.7 million and FFO per unit of $0.35 on a diluted basis, compared to FFO
of $18.6 million and FFO per unit of $0.35 for the same period last year.
Distributable Income ("DI") for the quarter was $19.4 million and DI per unit
was $0.37 on a diluted basis, compared to $19.4 million and $0.37 per unit for
the same period last year.
Funds From Operations ("FFO") is a generally accepted measure of operating
performance of real estate investment trusts and companies, however is a
non-GAAP measurement. 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 items
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.
Highlights of the Trust's second quarter 2005 financial results include:
- Rental revenues of $74.6 million, an increase of 7.2% compared to
$69.6 million for the three-month period ended June 30, 2004.
- Net operating income of $47.5 million, representing a 6.3% increase
from $44.7 million in the same period last year.
- FFO of $18.7 million, an increase of 0.5% compared to $18.6 million
for the three-month period ended June 30, 2004.
- FFO per unit was $0.35 on a diluted basis, unchanged compared to
$0.35 for the three-month period ended June 30, 2004.
- DI was $0.37 per unit, unchanged from $0.37 for the three months
ended June 30, 2004.
Highlights of the Trust's first half 2005 financial results include:
- Rental revenues of $147.9 million, an increase of 6.4% compared to
$139.0 million for the six-month period ended June 30, 2004.
- Net operating income of $92.1 million, representing a 4.9% increase
from $87.8 million in the same period last year.
- FFO of $35.2 million, an increase of 0.3% compared to $35.1 million
for the six-month period ended June 30, 2004.
- FFO per unit was $0.66 on a diluted basis, down 1.5% compared to
$0.67 for the six-month period ended June 30, 2004.
- DI was $0.69 per unit, down 1.4% from $0.70 for the six months ended
June 30, 2004.
Commenting on the Trust's second quarter results, Sam Kolias, President and
C.E.O., said, "We are pleased to continue to deliver solid second quarter
results on the heels of an exceptional springtime, which is typically a
seasonally soft period for landlords. The summer and fall months are shaping up
to be another well performing period for many of our markets, as leading rental
fundamentals continue to support an improving trend for landlords going forward.
Our internal rental revenue strategy is a three-pronged approach involving
the management of rental prices, incentives and vacancies. Overall we are
starting to gain momentum into the summer with vacancies and rental revenues
improving on a sequential quarter and year-over-year basis. Traditionally, the
months of July and August are our strongest rental months. Of special note,
Edmonton, our largest market representing 31% of the portfolio, has seen its
stabilized rental revenue numbers improve from negative 0.7% in Q1 to positive
1.2% in the latest quarter."
Operational Highlights
The average vacancy rate across the Trust's portfolio for the second quarter
of 2005 was 5.04%, down from 5.19% in the first quarter of 2005, and down from
5.67% compared to the same period last year.
The average monthly rent realized in the first six months of 2005 was $748
per unit, an increase of $9 from $739 per unit for the six-month period ended
June 30, 2004. Management estimates that market rents for its properties at the
end of June, 2005 averaged $798 per unit per month, which compares to an average
in-place monthly rent per occupied unit of $790 for the same period. This
translates into an estimated "loss-to-lease" of approximately $3.3 million,
maintaining existing occupancy rates.
Same-Property Results
The "same-property" results for the Trust's stabilized portfolio (defined as
properties owned for over 24 months) for the three-month period ended June 30,
2005 had rental revenue growth of 1.2%, an increase in total operating expenses
by 3.6%, resulting in NOI being unchanged compared to the same period last year.
The "same-property" results for the six-month period ended June 30, 2005 showed
rental revenue growth of 0.8%, an increase in total operating expenses by 4.8%,
resulting in a decrease in NOI of 1.5% compared to the same period last year. A
total of 30,597 units, representing approximately 92% of Boardwalk's total
portfolio, were classified as stabilized as at June 30, 2005.
Same-Property Results - Stabilized Portfolio
Three Months Ended June 30, 2005 vs. Three Months Ended June 30, 2004
-------------------------------------------------------------------------
Rental Total
Revenues Expenses NOI % of NOI
-------------------------------------------------------------------------
Calgary 2.0% 10.1% -1.3% 19%
Edmonton 1.2% 8.5% -2.4% 33%
Other Alberta 4.7% 6.2% 4.1% 6%
Saskatchewan 0.6% -3.7% 3.6% 12%
Ontario 0.9% -2.7% 4.1% 11%
Quebec 0.3% 1.5% -0.3% 19%
-------------------------------------------------------------------------
Total 1.2% 3.6% 0.0% 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Same-Property Results - Stabilized Portfolio
Six Months Ended June 30, 2005 vs. Six Months Ended June 30, 2004
-------------------------------------------------------------------------
Rental Total
Revenues Expenses NOI % of NOI
-------------------------------------------------------------------------
Calgary 1.5% 4.9% 0.1% 19%
Edmonton 0.3% 4.0% -1.7% 34%
Other Alberta 4.6% 10.7% 1.7% 6%
Saskatchewan -0.2% 2.0% -1.8% 12%
Ontario 0.2% 6.8% -5.5% 11%
Quebec 0.8% 5.0% -1.3% 18%
-------------------------------------------------------------------------
Total 0.8% 4.8% -1.5% 100%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As with the prior year, the Trust was the recipient of an Alberta natural gas
rebate based on usage and price in the first quarter of 2005. If we were to
exclude these rebates from the analysis, NOI for the six-month period ended June
30, 2005 would only have decreased by 1.3%.
Acquisition/Disposition Activity
There were no acquisitions announced in Q2 2005. The Trust completed the
previously announced sale of one property located in Edmonton, Alberta, which
closed on June 30, 2005. The property sold was Village Acres, a 186-unit, 2
1/2-storey wood-frame project in the northeast area of Edmonton. The sale price
was $9.5 million, or $51,250 per door, with a cap rate of 5.78%.
To date in 2005, the Trust has closed on 1,325 rental units, in a series
acquisitions spanning the provinces of Alberta, British Columbia and Quebec.
These previously announced acquisitions had a total purchase price of $115.2
million, and in aggregate, a going-in cap rate of 6.97%. Further details on the
Trust's acquisition and disposition activities can be found in the supplemental
information package available on Boardwalk REIT's website.
Commenting on the Trust's future property acquisitions, Bill Chidley, Senior
Vice President, Corporate Development, said, "The acquisition market for
multi-family rentals in Canada continues to be highly competitive, with most
markets experiencing declining cap-rates and aggressive vendor expectations. In
spite of this, we are in various stages of discussion regarding a number of
potential acquisitions, but cannot be certain of closing any of these
transactions."
Continued Financial Strength
The Trust maintained its solid financial position in the second quarter of
2005. Boardwalk's total mortgage and long-term debt was $1.55 billion as at June
30, 2005. This is up from $1.41 billion at June 30, 2004 reflecting the
additional debt on acquisitions completed during the year, and also includes the
issuance of unsecured debentures, which the Trust completed on January 21, 2005,
in the aggregate amount of $120 million. The debentures are rated "BBB" with a
stable trend by Dominion Bond Rating Services, carry a coupon rate of 5.31% and
will mature on January 23, 2012. Net proceeds of approximately $119 million were
used to fund acquisitions, repay operating lines of credit and for general trust
purposes.
As at June 30, 2005, the Trust's total debt had an average maturity of 3.8
years with a weighted average interest rate of 5.41%, and the Trust's total
debt-to-total-market-capitalization ratio was 59.8%.
The Trust's interest coverage ratio, excluding gains, for the three-month
period ended June 30, 2005 was 1.92 times compared to 2.06 times in the same
period last year.
Outlook and 2005 Earnings Guidance
Commenting on the outlook for the Trust, Rob Geremia, Senior Vice President,
Finance and CFO, said, "We are reaffirming our fiscal 2005 guidance for FFO and
distributable income of between $1.42 to $1.49 and $1.46 to $1.53, respectively.
These forecasts are based on the assumptions of approximately 0.0% to 1.0%
stabilized NOI growth and new property acquisitions of between 1,000 to 2,000
new residential units for the year."
Supplementary Information
Boardwalk produces Quarterly Supplemental Information that provides detailed
information regarding the Trust's activities during the quarter. The Second
Quarter 2005 Supplemental Information is available on the INVESTOR section of
our website (www.bwalk.com).
Teleconference on the Second Quarter Financial Results
We invite you to participate in the teleconference that will be held to
discuss these results today at 12:00 noon ET. Senior management will speak to
the financial results and provide an update. Presentation materials will be made
available on our website (http://www.boardwalkreit.com/) prior to
the call.
Participation & Registration: Please RSVP to Investor Relations at
403-531-9255 or by email to investor@bwalk.com.
Teleconference: The telephone numbers for the conference are:
416-640-4127 (within Toronto) or toll-free 1-800-814-4859 (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/webcast/viewEvent.cgi?eventID(equal sign)1191740
Replay: An audio recording of the teleconference will be available from
2:00 pm ET on August 11th, 2005 until 11:59 pm ET on August 18th, 2005.
You can access it by dialing 416-640-1917 and using the passcode 21132198
followed by the pound sign. An audio archive will also be available on
our website (http://www.boardwalkreit.com/) approximately two hours after
the conference call.
Corporate Profile
Boardwalk REIT is Canada's largest owner/operator of multi-family rental
communities. Boardwalk REIT currently owns and operates in excess of 260
properties with over 33,000 rental units totalling approximately 28 million net
rentable square feet. The Trust's portfolio is concentrated in the provinces of
Alberta, British Columbia, Saskatchewan, Ontario and Quebec. Boardwalk REIT's
Trust units are listed on the Toronto Stock Exchange, trading under the symbol
BEI.UN. The Trust's total market capitalization at June 30, 2005 was $2.6
billion.
Forward Looking Information
This press release may contain forward looking statements. These statements
relate, but are not limited to, Boardwalk REIT's expectations, intentions, plans
and beliefs. These forward looking statements can generally be identified by the
use of words "anticipated", "expected" or the negative thereof or other
comparable terminology. You should be aware that these statements are subject to
known and unknown risks, uncertainties and other factors, including the risks
discussed under the heading "Risk Factors" in the Annual Information Form of
Boardwalk REIT available on www.sedar.com.
Actual events or results may differ materially from those suggested by any
forward- looking statements. You should not place undue reliance on any
forward-looking statements contained in this press release.
By their nature, forward-looking statements involve numerous assumptions,
inherent risks and uncertainties, both general and specific, that contribute to
the possibility that the predictions, forecasts, projections and various future
events will not occur. Although management of Boardwalk REIT believes that the
expectations reflected in the forward-looking statements are reasonable, there
can be no assurances that future results, levels of activity, performance or
achievements will occur as anticipated. None of Boardwalk REIT nor any other
person assumes responsibility for the accuracy and completeness of any
forward-looking statements, and no one has any obligations to update or revise
any forward-looking statement, whether as a result of new information, future
events or such other factors which affect this information, except as required
by law.
CONSOLIDATED BALANCE SHEETS
(CDN$ THOUSANDS)
As at June 30, December 31,
2005 2004
-------------------------
(Unaudited) (Audited)
Assets
Revenue producing properties (NOTES 3 and 5) $1,818,243 $1,740,932
Deferred financing costs 43,317 39,056
Other assets 13,058 14,125
Future income taxes (NOTE 9) 1,366 547
Mortgages and accounts receivable 7,856 8,019
Segregated tenants' security deposits 6,948 6,460
Cash and cash equivalents 18,292 -
Discontinued operations (NOTE 5) 7,124 -
-------------------------------------------------------------------------
$1,916,204 $1,809,139
-------------------------
-------------------------
Liabilities
Mortgages payable (NOTE 5) $1,429,913 $1,414,122
Debentures (NOTE 6) 120,000 -
Accounts payable and accrued liabilities 27,592 27,151
Refundable tenants' security deposits and other 10,071 9,543
Capital lease obligations - 84
Bank indebtedness - 2,723
Discontinued operations (NOTE 5) 4,459 -
-------------------------------------------------------------------------
$1,592,035 $1,453,623
-------------------------
-------------------------
Unitholders' Equity
Unitholders' capital (NOTE 7) 294,735 293,503
Accumulated earnings 29,434 62,013
-------------------------------------------------------------------------
$324,169 $355,516
-------------------------------------------------------------------------
$1,916,204 $1,809,139
-------------------------
-------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS
(CDN$ THOUSANDS, EXCEPT PER UNIT AMOUNTS)
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-----------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue
Rental income $74,608 $69,580 $147,885 $138,956
-----------------------------------------------
Expenses
Revenue producing
properties:
Operating expenses 10,005 8,707 19,304 17,175
Utilities 8,988 9,455 21,130 21,311
Utility rebate
(NOTE 10) 15 - (621) (812)
Property taxes 8,069 6,761 15,990 13,476
Administration 7,160 6,253 14,063 12,302
Financing costs 20,898 18,615 41,119 37,765
Deferred financing
costs amortization 934 818 1,863 1,519
Amortization of
capital assets 18,802 17,799 37,339 35,047
-------------------------------------------------------------------------
74,871 68,408 150,187 137,783
-----------------------------------------------
-----------------------------------------------
(263) 1,172 (2,302) 1,173
Recovery of write-down
on technology business
unit (739) - (739) -
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before income taxes 476 1,172 (1,563) 1,173
Large corporations taxes (126) 408 119 1,200
Future income taxes
(recovery) (NOTE 9) (744) (1,697) (832) (1,343)
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations 1,346 2,461 (850) 1,316
Earnings (loss) from
discontinued operations,
net of tax (NOTE 5) 1,583 (46) 1,748 (128)
-------------------------------------------------------------------------
Net earnings $2,929 $2,415 $898 $1,188
-----------------------------------------------
-----------------------------------------------
Basic earnings (loss)
per unit (NOTE 8)
- from continuing
operations $0.02 $0.05 $(0.01) $0.02
- from discontinued
operations $0.03 - $0.03 -
-------------------------------------------------------------------------
Basic earnings per unit $0.05 $0.05 $0.02 $0.02
-----------------------------------------------
-----------------------------------------------
Diluted earnings (loss)
per unit (NOTE 8)
- from continuing
operations $0.02 $0.05 $(0.01) $0.02
- from discontinued
operations $0.03 - $0.03 -
-------------------------------------------------------------------------
Diluted earnings per unit $0.05 $0.05 $0.02 $0.02
-----------------------------------------------
-----------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF ACCUMULATED EARNINGS
(CDN$ THOUSANDS)
6 months 6 months
ended ended
June 30, June 30,
2005 2004
------------------------
(Unaudited) (Unaudited)
Accumulated earnings, beginning of period $62,013 $32,993
Net earnings 898 1,188
Distributions declared on units (33,477) (14,878)
Premium on unit repurchases - (1,023)
Elimination of future income taxes on
conversion to trust - 73,553
-------------------------------------------------------------------------
Accumulated earnings, end of period $29,434 $91,833
------------------------
------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CDN$ THOUSANDS)
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-----------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating activities
Net earnings $2,929 $2,415 $898 $1,188
Loss (earnings) from
discontinued operations,
net of tax (1,583) 46 (1,748) 128
Future income taxes
(recovery) (744) (1,697) (832) (1,343)
Amortization of capital
assets 18,802 17,799 37,339 35,047
Recovery of write-down
on technology business
unit (739) - (739)
-------------------------------------------------------------------------
Funds from continuing
operations 18,665 18,563 34,918 35,020
Funds from discontinued
operations 49 59 253 90
Net change in operating
working capital (1,500) 12,618 3,149 10,204
-------------------------------------------------------------------------
Total operating cash
flows 17,214 31,240 38,320 45,314
-----------------------------------------------
Financing activities
Issue of trust units
(net of issue costs)
(NOTE 7) 840 6,165 1,197 28,642
Unit repurchase program - (1,633) - (1,633)
Restructuring costs (46) (8,500) 35 (8,500)
Distributions paid (16,744) (10,940) (33,481) (14,878)
Issue of debentures
(NOTE 6) - 120,000
Financing of revenue
producing properties 66,494 34,656 112,962 69,855
Repayment of debt on
revenue producing
properties (76,430) (29,978) (106,244) (66,473)
Capital lease obligations (21) (274) (84) (584)
Deferred financing costs
incurred (net of
amortization) (1,736) (1,504) (4,561) (2,967)
-------------------------------------------------------------------------
(27,643) (12,008) 89,824 3,462
-----------------------------------------------
-----------------------------------------------
Investing activities
Purchases of revenue
producing properties
(NOTE 4) - (13,089) (103,289) (22,263)
Project improvements
to revenue producing
properties (6,233) (6,766) (12,313) (12,961)
Net cash proceeds from
sale of properties 9,405 - 9,405 -
Technology for real
estate operations (537) 165 (932) (282)
-------------------------------------------------------------------------
2,635 (19,690) (107,129) (35,506)
-----------------------------------------------
-----------------------------------------------
Net increase (decrease)
in cash and cash
equivalents balance (7,794) (458) 21,015 13,270
Cash and cash equivalents
(bank indebtedness),
beginning of period 26,086 23,851 (2,723) 10,123
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $18,292 $23,393 $18,292 $23,393
-----------------------------------------------
-----------------------------------------------
Supplementary cash flow
information:
Taxes paid $668 $336 $658 $1,242
Interest paid $19,341 $18,901 $38,343 $38,291
-----------------------------------------------
-----------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and six months ended June 30, 2005
(TABULAR AMOUNTS IN CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS AND PER UNIT
AMOUNTS UNLESS OTHERWISE STATED)
(UNAUDITED)
1. ORGANIZATION OF TRUST
Boardwalk Real Estate Investment Trust ("Boardwalk REIT" or the
"Trust") is an unincorporated, open-ended real estate investment
trust created pursuant to the Declaration of Trust, dated January 9,
2004 and as amended and restated on May 3, 2004, under the laws of
the Province of Alberta. Boardwalk REIT was created to invest in
revenue producing multi-family residential properties or interests
within Canada, initially through the acquisition of operations of
Boardwalk Equities Inc. (the "Corporation"), which was acquired on
May 3, 2004.
2. BASIS OF PRESENTATION
These unaudited interim consolidated financial statements of
Boardwalk Real Estate Investment Trust (the "Trust") have been
prepared in accordance with the recommendations of the handbook of
the Canadian Institute of Chartered Accountants ("CICA Handbook") and
are consistent with those used in the audited consolidated financial
statements as at and for the year ended December 31, 2004, except as
described in Note 3 below. These interim financial statements do not
include all of the disclosures required by Canadian generally
accepted accounting principles ("Canadian GAAP") applicable to annual
financial statements and, therefore, they should be read in
conjunction with the audited consolidated financial statements.
The preparation of financial statements in accordance with Canadian
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and to make
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from
those estimates.
Due to seasonality, the operating results for the three and six
months ended June 30, 2005 are not necessarily indicative of the
results that may be expected for the full year ending December 31,
2005.
The comparative figures for the three months ended June 30, 2004
represent the activities of Boardwalk Equities Inc. for the period
from April 1, 2004 to May 2, 2004 combined with the activities of
Boardwalk REIT for the period from May 3, 2004 to June 30, 2004. The
comparative figures for the six months ended June 30, 2004 represent
the activities of the Boardwalk Equities Inc. for the period from
January 1, 2004 to May 2, 2004 combined with the activities of
Boardwalk REIT for the period from May 3, 2004 to June 30, 2004.
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
a) ACCOUNTING POLICY CHANGES
(i) HEDGE ACCOUNTING
Beginning January 1, 2005, the Trust adopted hedge accounting in
accordance with the transitional provisions of CICA Handbook
Section 3865. Hedge accounting was applied to a bond forward
contract (see NOTE 6) entered into by the Trust to mitigate future
cash interest payments associated with our unsecured debentures,
which was completed on January 21, 2005.
(ii) CONSOLIDATION OF VARIABLE INTEREST ENTITIES
These consolidated financial statements include the accounts of
Boardwalk REIT and its wholly owned subsidiaries, as well as
variable interest 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.
b) RECLASSIFICATION OF PROPERTIES HELD FOR RESALE
Prior to the commencement of the second quarter of 2005, certain
excess land located in the province of Saskatchewan that was being
developed and made readied for sale was classified as "Properties
Held for Resale". The Trust capitalized all direct costs, including
financing and property tax costs, net of related revenue, associated
with the land. Capitalization of costs continued to the end of the
first quarter of 2005, when the development was substantially
completed. Capitalized financing and property tax costs totalled
$0.1 million for the three months ended March 31, 2005 ($0.4 million
for the year ended December 31, 2004).
Commencing in the second quarter of 2005, the excess land in the
amount of $8.0 million (December 31, 2004 - $7.9 million) was
reclassified as a component of revenue producing properties.
4. REVENUE PRODUCING PROPERTIES
Acquisitions
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-----------------------------------------------
Cash paid $- $13,089 $103,289 $22,263
Debt assumed - 10,409 13,144 18,321
---------------------------------------------------------------------
Total purchase price $- 23,498 $116,433 40,584
Fair value adjustments
to debt - 774 (207) 1,334
---------------------------------------------------------------------
Book value $- $24,272 $116,226 $41,918
-----------------------------------------------
-----------------------------------------------
Allocation of book
value to revenue
producing properties $- $23,235 $112,569 $40,145
Allocation of book
value to other assets - 1,037 3,657 1,773
---------------------------------------------------------------------
$- $24,272 $116,226 $41,918
-----------------------------------------------
-----------------------------------------------
Units acquired - 354 1,325 537
-----------------------------------------------
-----------------------------------------------
Dispositions
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-----------------------------------------------
Cash received $9,405 $- $9,405 $-
Cost of dispositions 127 - 127 -
---------------------------------------------------------------------
Total proceeds 9,532 - 9,532 -
Net book value 8,025 - 8,025 -
---------------------------------------------------------------------
Gain on sale $1,507 $- $1,507 $-
-----------------------------------------------
-----------------------------------------------
Units sold 186 - 186 -
-----------------------------------------------
-----------------------------------------------
5. DISCONTINUED OPERATIONS
During the first quarter of 2005, a commercial building 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 available for immediate sale and is being marketed for
sale at a price that is reasonable in relation to its current fair
value. During the second quarter of 2005, the Trust completed the
sale of a 186-unit rental property located in Edmonton, Alberta. This
rental property formed part of our Alberta segment in our segmented
information disclosure.
The following tables set forth the results of operations as well as
the assets and liabilities associated with the discontinued
operations.
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-----------------------------------------------
Revenue
Rental income $514 $460 $1,036 $909
---------------------------------------------------------------------
Expenses
Revenue producing
properties:
Operating expenses 53 62 113 133
Utilities 66 100 179 198
Utility rebate (8) - (8) -
Property taxes 42 23 67 53
Administration 18 15 36 39
Financing costs 293 195 394 390
Deferred financing
cost amortization 1 6 2 6
Amortization of
capital assets - 126 - 251
---------------------------------------------------------------------
465 527 783 1,070
-----------------------------------------------
49 (67) 253 (161)
Gain on disposition 1,507 - 1,507 -
-----------------------------------------------
Operating earnings
(loss) from
discontinued
operations before
income taxes 1,556 (67) 1,760 (161)
Future income taxes
(recovery) (27) (21) 12 (33)
---------------------------------------------------------------------
Earnings (loss) from
discontinued
operations $1,583 $(46) $1,748 $(128)
-----------------------------------------------
-----------------------------------------------
June 30,
2005
-----------
Discontinued Assets
Revenue producing properties $6,761
Other assets 363
---------------------------------------------------------------------
Total $7,124
-----------
-----------
Discontinued Liabilities
Mortgages payable $4,459
---------------------------------------------------------------------
Total $4,459
-----------
-----------
6. 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 be 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 were 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.
7. 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, $10.1 million was incurred for
restructuring costs. Under the Arrangement, the former shareholders
of Boardwalk Equities Inc. received Boardwalk REIT units or Class B
Limited Partnership ("LP Class B") units of a controlled limited
partnership of the Trust, Boardwalk REIT Limited Partnership.
The LP Class B units are non-transferable, except under certain
circumstances, but are exchangeable, on a one-for-one basis, into
Boardwalk REIT units at any time at the option of the holder. Prior
to such exchange, distributions will be made on the exchangeable
units in an amount equivalent to the distributions which would have
been made had the units of Boardwalk REIT been issued. Each LP
Class B unit was accompanied by a Special Voting unit, which will
entitle the holder to receive notice of, attend and vote at all
meetings of unitholders. There is no value assigned to the Special
Voting units. The LP Class B units issued are included in the
unitholders' capital contributions on the balance sheet. The changes
in unitholders' capital contribution are as follow:
Shares Amount
Share capital of Boardwalk Equities Inc.
at December 31, 2003 50,868,119 $275,509
Options exercised 2,345,155 28,372
-------------------------
Share capital of Boardwalk Equities Inc.
at May 2, 2004 exchanged for trust units 53,213,274 $303,881
-------------------------
Summary of Unitholders' Capital
Contributions Units Amount
Units issued in exchange for
Boardwalk Equities Inc. shares 53,213,274 $303,881
Issuance of 15,000 units for cash at
$18.00 per unit on May 3, 2004 15,000 270
Unit repurchases, recorded at
book value of units (138,400) (766)
Units issued under distribution
reinvestment plan 17,693 292
Restructuring costs - (10,174)
-------------------------
December 31, 2004 53,107,567 $293,503
Units issued under distribution
reinvestment plan 64,862 1,197
Restructuring cost recovery - 35
-------------------------
June 30, 2005 53,172,429 $294,735
-------------------------
-------------------------
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 48,697,429
Special Voting Units issued to
holders of LP Class B units 4,475,000
-------------------------
Total trust units 53,172,429 $294,735
-------------------------
-------------------------
8. 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 reconciliation
of distributable income and per unit information begins with net
earnings calculated in accordance with Canadian generally accepted
accounting principles and as defined in the Declaration of Trust for
Boardwalk REIT. However, distributable income and the per unit
information are non-GAAP measures that do not have any standardized
meaning prescribed by Canadian GAAP and, therefore, unlikely to be
comparable to similar measures presented by other real estate
companies and trusts.
6 months
ended
June 30,
2005
-----------
Net earnings $898
Add:
Amortization of capital assets 37,339
Amortization of deferred financing costs
incurred prior to May 3, 2004 1,549
Amortization of net discount on long-term
debt assumed after May 2, 2004 1
Deduct:
Future income tax recovery (820)
Gain on disposal (1,507)
Recovery of write-down on technology business unit (739)
---------------------------------------------------------------------
Distributable income $36,721
Distribution to unitholders $33,477
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average units outstanding - basic and diluted 53,133,122
Distributable income earned per unit $0.691
Actual distributions declared per unit $0.630
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per unit
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-----------------------------------------------
Numerator
Earnings (loss)
from continuing
operations $1,346 $2,461 $(850) $1,316
Earnings (loss)
from discontinued
operations $1,583 $(46) $1,748 $(128)
---------------------------------------------------------------------
Denominator
Denominator for
basic earnings per
unit - weighted
average units
(THOUSANDS) 53,150 53,091 53,133 52,395
---------------------------------------------------------------------
Effect of dilutive
units
Units issued (stock
options before
May 3, 2004) in
respect of long-term
incentive plan
(THOUSANDS) - - - -
Denominator for
diluted earnings per
unit adjusted for
weighted average
units and assumed
conversion
(THOUSANDS) 53,150 53,091 53,133 52,395
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings (loss) per
unit from continuing
operations
Basic $0.02 $0.05 $(0.01) $0.02
Diluted $0.02 $0.05 $(0.01) $0.02
---------------------------------------------------------------------
Earnings (loss) per
unit from discontinued
operations
Basic $0.03 $0.00 $0.03 $0.00
Diluted $0.03 $0.00 $0.03 $0.00
---------------------------------------------------------------------
---------------------------------------------------------------------
9. INCOME TAXES
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. Total future income tax recovery
for the three and six months ended June 30, 2004 combines the results
of Boardwalk Equities Inc. prior to May 3, 2004 with the results of
Boardwalk REIT subsequent to May 2, 2004. The adjustment for change
in effective tax rate reflects the reduction of the current combined
federal and provincial substantially enacted rate in the province of
Alberta.
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-----------------------------------------------
Continuing operations $(744) $(1,697) $(832) $(1,343)
Discontinued operations (27) (21) 12 (33)
---------------------------------------------------------------------
Total future income
taxes (recovery) $(771) $(1,718) $(820) $(1,376)
-----------------------------------------------
-----------------------------------------------
Future income taxes (recovery) consist of the following:
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-----------------------------------------------
Tax (recovery) expense
based on expected rate $(90) $233 $(139) $201
Adjustment to future
income tax liabilities (601) (188) (601) (26)
Adjustment for change
in effective tax rate (80) (1,763) (80) (1,551)
---------------------------------------------------------------------
Future income taxes
(recovery) $(771) $(1,718) $(820) $(1,376)
-----------------------------------------------
-----------------------------------------------
The future income tax asset (liability) is calculated as follows:
As at June 30, December
2005 31, 2004
-----------------------
Tax assets related to operating losses $1,055 $1,034
Tax liabilities related to differences
in tax and book basis 311 (487)
---------------------------------------------------------------------
Future income tax asset (liability) 1,366 $547
-----------------------
-----------------------
10. COMMITMENTS AND CONTINGENCIES
At June 30, 2005, the Trust had long-term supply arrangements with
two electrical utility companies to supply the Trust with its
electrical power needs for Alberta for the next six to eighteen
months at a blended rate of approximately $0.066/kwh. These
agreements provide that the Trust purchase its power for all Alberta
properties under contract for the upcoming months.
The Trust also has a physical settlement fixed-price supply contract
for Alberta natural gas requirements. This contract fixes the price
of natural gas for 37.5% of the Trust's requirements in Alberta. The
contract is for physical settlement, runs from October 1, 2003 to
September 30, 2005, and provides the commodity at a price of
$6.16/GJ.
In Saskatchewan, the Trust has a physical supply agreement to supply
100% of the Trust's natural gas requirements for that province. The
agreement extends until October 31, 2005 at a fixed price of
$5.20/GJ.
In Eastern Canada, Boardwalk REIT has procured approximately 37% of
its gas usage requirements under a physical fixed-price supply
contract until August 2005, priced near $6.00/GJ.
While the above utility contracts for both electrical power and
natural gas 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.
Beginning in November 2003, the Alberta government implemented a
natural gas rebate program covering the winter usage months of
November through March. This program will be in effect for a
remaining nine-month term ending March 31, 2006. The rebate program
becomes active when the natural gas consumer price exceeds $5.50/GJ
for any individual winter usage month. For January to March 2005,
Boardwalk REIT was eligible for rebates totalling approximately
$0.6 million. For January to March 2004, Boardwalk REIT's predecessor
was eligible for rebates totalling approximately $0.8 million.
Boardwalk REIT, in the normal course of operations, will become
subject to a variety of legal and other claims against the Trust.
Management and the Trust's legal counsel evaluate all claims on their
apparent merits, and accrue management's best estimate of the
estimated costs to satisfy such claims. Management believes that the
outcome of legal and other claims filed against the Trust or its
predecessor will not be material to Boardwalk REIT.
11. GUARANTEES
In the normal course of business, various agreements may be entered
that may contain features that meet the AcG-14 definition of a
guarantee. AcG-14 defines a guarantee to be a contract (including an
indemnity) that contingently requires an entity to make payments to
the guaranteed party based on (i) changes in an underlying interest
rate, foreign exchange rate, equity or commodity instrument, index or
other variable, that is related to an asset, a liability or an equity
security of the counterparty, (ii) failure of another party to
perform under an obligating agreement or (iii) failure of a third
party to pay its indebtedness when due.
In connection with the sales of properties, a mortgage assumed by the
purchaser will have an indirect guarantee provided to the lender
until the mortgage is refinanced by the purchaser. In the event of
default by the purchaser, the seller would be liable for the
outstanding mortgage balance. Boardwalk REIT's maximum exposure at
June 30, 2005 is approximately $5.8 million. In the event of default,
Boardwalk REIT's recourse for recovery includes the sale of the
respective building asset. Boardwalk REIT expects that the proceeds
from the sale of the building asset will cover, and in most
likelihood exceed, the maximum potential liability associated with
the amount being guaranteed. Therefore, at June 30, 2005, no amounts
have been recorded in the consolidated financial statements with
respect to the above noted indirect guarantees.
12. SEGMENTED INFORMATION
Boardwalk REIT specializes in multi-family residential housing and
operates primarily within one business segment in four provinces
located in Canada. The following summary presents segmented financial
information for Boardwalk REIT's business by geographic location. The
comparative figures represent the activities of Boardwalk Equities
Inc.
3 months 3 months 6 months 6 months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
-----------------------------------------------
Alberta
Revenue $39,116 $37,472 $77,805 $75,244
-----------------------------------------------
Expenses
Operating 5,314 4,249 9,970 9,078
Utilities 4,914 4,853 10,555 10,876
Utility rebates 9 - (627) (812)
Property taxes 3,301 2,720 6,552 5,396
---------------------------------------------------------------------
13,538 11,822 26,450 24,538
-----------------------------------------------
Net operating income $25,578 $25,650 $51,356 $50,706
-----------------------------------------------
Saskatchewan
Revenue $8,531 $8,482 $17,082 $17,110
-----------------------------------------------
Expenses
Operating 1,319 1,167 2,476 2,241
Utilities 826 1,271 2,432 2,787
Property taxes 1,276 1,118 2,502 2,235
---------------------------------------------------------------------
3,421 3,556 7,410 7,263
-----------------------------------------------
Net operating income $5,110 $4,926 $9,672 $9,847
-----------------------------------------------
Ontario
Revenue $9,206 $8,891 $18,455 $17,865
-----------------------------------------------
Expenses
Operating 1,230 1,073 2,549 2,156
Utilities 1,431 1,719 3,457 3,408
Property taxes 1,649 1,445 3,326 2,947
---------------------------------------------------------------------
4,310 4,237 9,332 8,511
-----------------------------------------------
Net operating income $4,896 $4,654 $9,123 $9,354
-----------------------------------------------
British Columbia
Revenue $1,483 $- $2,415 $-
-----------------------------------------------
Expenses
Operating 283 - 298 -
Utilities 106 - 213 -
Property taxes 66 - 88 -
-----------------------------------------------
455 - 599 -
-----------------------------------------------
Net operating income $1,028 $- $1,816 $-
-----------------------------------------------
Quebec
Revenue $16,063 $14,620 $31,731 $28,459
-----------------------------------------------
Expenses
Operating 1,737 1,430 3,471 2,875
Utilities 1,673 1,580 4,279 4,211
Property taxes 1,764 1,474 3,497 2,893
---------------------------------------------------------------------
5,174 4,484 11,247 9,979
-----------------------------------------------
Net operating income $10,889 $10,136 $20,484 $18,480
-----------------------------------------------
Total
Net operating income $47,501 $45,366 $92,450 $88,387
Unallocated revenue(x) 10,255 575 10,965 1,187
Unallocated
expenses(xx) (54,827) (43,526) (102,517) (88,386)
---------------------------------------------------------------------
Net earnings for
the period $2,929 $2,415 $898 $1,188
-----------------------------------------------
-----------------------------------------------
As at
June 30, December
2005 31, 2004
-----------------------
Alberta
Identifiable assets
Revenue producing properties $960,503 $939,735
Mortgages and accounts receivable 969 297
Deferred financing costs 26,045 24,392
Tenants' security deposit 5,432 5,243
-----------------------
$992,949 $967,667
-----------------------
Saskatchewan
Identifiable assets
Revenue producing properties $178,812 $181,230
Mortgages and accounts receivable 90 102
Deferred financing costs 4,411 4,467
Tenants' security deposits 1,292 1,216
-----------------------
$184,605 $187,015
-----------------------
Ontario
Identifiable assets
Revenue producing properties $216,155 $218,740
Mortgages and accounts receivable 179 246
Deferred financing costs 3,578 3,329
-----------------------
$219,912 $222,315
-----------------------
British Columbia
Identifiable assets
Revenue producing properties $61,670 $-
Mortgages and accounts receivable 7 -
Tenants' security deposits 228 -
-----------------------
$61,905 $-
-----------------------
Quebec
Identifiable assets
Revenue producing properties $397,364 $389,866
Mortgages and accounts receivable 4,687 4,465
Deferred financing costs 6,135 5,417
-----------------------
$408,186 $399,748
-----------------------
Total assets
Identifiable assets $1,867,557 $1,778,745
Unallocated assets(xxx) 48,647 37,334
-----------------------
$1,916,204 $1,809,139
-----------------------
-----------------------
(x) Unallocated revenue includes property sales, interest income,
revenue from discontinued operations and other non-rental income.
(xx) Unallocated expenses include cost of property sales, operating
expenses from discontinued operations, non-rental operating
expenses, administration, financing costs, amortization, income
taxes and other provisions.
(xxx) Unallocated assets include discontinued assets, cash, short-term
investments and other assets.
For further information please contact:
Boardwalk REIT
Sam Kolias,
President and CEO,
(403) 531-9255;
Roberto Geremia,
Senior Vice President, Finance
and Chief Financial Officer,
(403) 531-9255;
Paul Moon,
Director of Corporate Communications,
(403) 531-9255.
