TSX SYMBOL: BEI.UN May 11, 2007
Boardwalk REIT Announces Solid First Quarter 2007 Financial Results with Funds From Operations
per Unit Up 25.0% and Distributable Income per Unit up 27.3% YOY for the First Quarter; Upward
Revision in Guidance; and an Increase in Annual Distributions by 8.1% to $1.60 Per Trust Unit Per
Year.
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SUPPLEMENTAL NOTES - Q1-2007 (Printer Friendly PDF File - 182Kb)
Calgary, Alberta – May 11, 2007
- Boardwalk Real Estate Investment Trust ("BEI.UN" - TSX)
CALGARY, May 11 /CNW/ - Boardwalk Real Estate Investment Trust
("Boardwalk REIT" or the "Trust") today announced solid financial results for
the first quarter of 2007 with FFO per unit up 25.0% YOY and DI per Unit up
27.3% YOY; upward revision in guidance; and an increase in annual
distributions by 8.1% to $1.60 per Trust Unit per year.
For the first quarter ended March 31, 2007, the Trust reported Funds From
Operations(1) ("FFO") of $22.8 million and FFO per unit of $0.40 on a diluted
basis, compared to FFO of $17.2 million and FFO per unit of $0.32 for the same
period last year. Distributable Income ("DI") for the quarter was
$23.6 million and DI per Unit was $0.42 on a diluted basis, compared to
$17.7 million and $0. 33 per unit, respectively, for the same period last
year.
<<
Highlights of the Trust's First Quarter 2007 financial results include:
- Rental Revenues of $87.6 million, an increase of 15.0% compared to
$76.2 million for the three-month period ended March 31, 2006.
- Net Operating Income (NOI) of $51.0 million, representing a 19.4%
increase from $42.7 million in the same period last year.
- Funds From Operations (FFO) of $22.8 million, an increase of 32.6%
compared to $17.2 million for the three-month period ended March 31,
2006.
- FFO per Unit of $0.40 on a diluted basis, up 25.0% compared to $0.32
in the same period last year.
- Distributable Income (DI) of $0.42 per unit, up 27.3% from $0.33 for
the three months ended March 31, 2006.
>>
Commenting on the Trust's Q1 2007 results, Sam Kolias, C.E.O., said: "We
are pleased to report on another strong quarter for the Trust. Our Alberta
portfolio, which makes up in excess of 53% of our total portfolio, continued
to lead the charge. We are particularly pleased to report that growth in
operating results is also being generated by our British Columbia,
Saskatchewan and Quebec assets as well. Occupancy remains high, despite rental
rates being significantly higher than they were one year ago, contributing to
positive revenue growth for the Trust. However, operating expenses continued
to rise across the entire portfolio, particularly due to labour inflation in
Alberta, which tempered the growth of NOI."
"Positive market fundamentals continue to produce strong results across
our entire Alberta portfolio. It remains too soon to predict how the Calgary
market will fare through 2007, but the minimal winter-spring seasonal
pull-back noted over the last few months generally precedes a strong summer
and fall rental season. Current rental characteristics in Edmonton are now
similar to those seen in Calgary in January 2006. Edmonton, which makes up in
excess of 32% of our overall portfolio, appears poised to generate significant
gains over the coming months."
"While we are certainly pleased by the positive gains noted in Alberta,
our priority remains balanced and sustainable growth. Today's most exciting
investment story surrounds our Alberta portfolio. However, we believe our
geographic diversification into 18 markets in five provinces is our most
important investment advantage. Over the long term, diversification greatly
increases our sustainability as a proven, growing investment option. We are
committed to delivering sustainable, long-term value into the future to our
Unitholders."
Commenting on the political landscape of Alberta, Roberto Geremia,
President, said: "Due to Alberta's economic boom and consequent accommodation
price inflation, affordable housing has become an important topic for
Government, media, and the public at large. We are extremely pleased that,
though confronted with intense pressure from the media and opposition parties,
the Provincial Government has remained steadfast in its stand against
legislated rent controls. At the end of April, 2007, the Government of Alberta
announced that it would not implement rent controls, but would instead commit
significant Provincial monies to affordable housing alternatives. Most
importantly, the Government illustrated its support for public-private
affordable housing partnerships by almost doubling the Government's financial
commitment in this area."
"As well as the injection of Provincial money towards affordable housing,
the Government has tabled one legislative change, limiting landlords to one
rental increase per year from the previously allowable two increases per year.
Prior to the Government's proposed legislative changes, we limited our
Customers' rental increases to $150 per year, distributed in equal increases
of $75 every six months. We stand by our self-imposed, Customer- focused
internal rental rate limit. Looking forward, we will continue to limit rental
increases to $150 per year for existing Customers, now implemented one time
per year. In order to offer more stability, we will offer Customers a
twelve-month lease, which will effectively lock rents at a consistent level
for the entire year. Our Customers' occupied rent continues to be below
existing posted market rents in each respective market."
According to the proposed legislative changes announced by the
Government, effective April 24, 2007, landlords will only be entitled to raise
rents once per year from the later of the commencement date of a tenant's
lease or the anniversary date of his/her last rent increase.
"Because the rental market is cyclical, our self-imposed,
Customer-focused policies, including our internal 'rent protection' policy and
rental subsidy program, make good business sense for all landlords. It is in
our best interests to proactively ensure the rental market remains healthy and
viable over the long term. At all times, we remember that our Customers are
the cornerstone of our business. We are committed to pursuing a balance
between profitability and Customer relationship. We hope that, as the Canadian
multi-family residential industry's leader, Boardwalk will act as a benchmark
of appropriate and long-sighted action that other landlords choose to follow."
<<
Operational Highlights
- The average vacancy rate across the Trust's portfolio for the First
Quarter of 2007 was 4.39%, seasonally up from 3.51% in the Fourth
Quarter of 2006, and up from 4.17% in the First Quarter of last year.
- The average monthly rent on our entire portfolio realized in the
first quarter of 2007 was $842 per rental unit, up $75 from
$767 per rental unit for the same period last year.
- The average market rent for the Trust's properties at the end of
March 2007 was an estimated $1,015 per rental unit per month, which
compares to an average in-place monthly rent per occupied unit of
$881 for the quarter ended March 31, 2007.
- At the end of March 2007, the potential between occupied rents and
market rents (mark-to-market) totaled $50.5 million, or
$0.90 per unit, down from $53.8 million, or $0.97 per unit, at the
end of December 2006.
>>
More detail on our operations will be found in our conference call
presentation to be posted on our web site today at
www.boardwalkreit.com/FinancialReports/. The conference call audio for this
presentation can also be found on our web site at
www.boardwalkreit.com/FinancialReports/ following the call.
Same-Property Results
Boardwalk 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 March 31, 2007 showed rental revenue growth of 10.6%
on a year-over-year basis. Operating expenses increased 5.7%, resulting in an
increase in NOI of 14.2% compared to the same period last year. A total of
33,014 units, representing approximately 93% of Boardwalk's total portfolio,
were classified as stabilized as at March 31, 2007.
<<
Same-Property Results - Stabilized Portfolio
Net % of
Operating Operating Stabi-
No. of Revenue Expense Income lized
Mar 31 2007 - 3 M Units Growth Growth Growth NOI
Calgary 4,973 21.3% 11.9% 25.6% 22%
Edmonton 10,369 15.8% 8.3% 20.5% 34%
Other Alberta 1,680 18.1% 9.1% 22.9% 7%
British Columbia 633 6.3% 2.7% 8.1% 2%
Saskatchewan 4,660 6.0% 7.5% 4.6% 9%
Quebec 6,434 2.0% 0.5% 3.4% 17%
Ontario 4,265 0.0% 2.4% -3.0% 8%
-----------------------------------------------
-----------------------------------------------
33,014 10.6% 5.7% 14.2% 100%
-----------------------------------------------
-----------------------------------------------
Commenting on Boardwalk's same-property results, CEO, Sam Kolias, said,
"In the first quarter, we were pleased to see revenue growth accelerating more
quickly than expense increases on a stabilized property basis for the sixth
straight quarter. Overall, our portfolio operating expenses continued to rise.
However, increasing expenses were somewhat tempered by savings in natural gas
expenditures, and property taxes were flat after the massive increases of the
past couple years."
Real Estate Acquisition/Disposition Activity
Closed Acquisitions
No. of
Building Name City Units Type Price
-------------------------------------------------------------------------
Ridgemont Apartments Coquitlam 41 Walk Up $ 3,700,000
St. Charles Place & Edmonton 51 Walk Up $ 4,150,000
Parkview Manor
West Edmonton Village Edmonton 1,176 High-Rise, $143,500,000
Mid-Rise,
Townhomes
Prarie Sunrise Grand 275 High-Rise $ 40,000,000
Portfolio Prarie & Walk Up
-------------------------------------------------------------------------
Total 1,543 $191,350,000
-------------------------------------------------------------------------
Year 1 Year 2
Cap Cap
Building Name City Rate Rate $/unit $/sq ft Closing
-------------------------------------------------------------------------
Ridgemont Coquitlam 5.03% 5.66% $ 90,244 $142 January 25,
Apartments 2007
St. Charles Place Edmonton 4.52% 5.52% $ 81,373 $104 January 26,
& Parkview Manor 2007
West Edmonton Edmonton 5.47% 6.61% $122,024 $126 February 28,
Village 2007
Prarie Sunrise Grand 4.74% 6.30% $145,455 $175 March 14,
Portfolio Prarie 2007
-------------------------------------------------------------------------
Total 5.29% 6.50% $124,012 $133
-------------------------------------------------------------------------
Unconditional Acquisitions
No. of
Building Name City Units Type Price
-------------------------------------------------------------------------
Springwood Edmonton 160 Low-Rise $ 16,000,000
(Spurce Grove)
-------------------------------------------------------------------------
Total 160 $ 16,000,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TOTAL ACQUISITIONS 1,703 $207,350,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Year 1 Year 2
Cap Cap
Building Name City Rate Rate $/unit $/sq ft Closing
-------------------------------------------------------------------------
Springwood Edmonton 5.63% 6.44% $100,000 $130 May 28,
(Spurce Grove) 2007
-------------------------------------------------------------------------
Total 5.63% 6.44% $100,000 $130
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TOTAL ACQUISITIONS 5.33% 6.50% $121,756 $133
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Dispositions
No. of
Building Name City Units Type Price
-------------------------------------------------------------------------
St. Charles Place Edmonton 51 Walk Up $ 5,900,000
& Parkview Manor
-------------------------------------------------------------------------
Total 51 $ 5,900,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Year 1
Cap
Building Name City Rate $/unit $/sq ft Closing
-------------------------------------------------------------------------
St. Charles Place Edmonton 3.20% $115,686 $148 April 30, 2007
& Parkview Manor
-------------------------------------------------------------------------
Total 3.20% $115,686 $148
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
Commenting on the Trust's property acquisitions and dispositions, Bill
Chidley, Senior Vice President, Corporate Development, said: "The acquisitions
completed during the first quarter of 2007 added quality assets in strong
Western Canadian rental markets. We remain comfortable with meeting the high
end of our acquisition target of 1000 to 2000 residential units in 2007."
"Our highly skilled Acquisitions department continues to work proactively
to find, underwrite and negotiate superior acquisition opportunities across
the country. Currently, our primary focus is in the strong Western Canadian
market, most particularly the Lower Mainland and Victoria areas in British
Columbia, the entire Province of Alberta, and the major centers in
Saskatchewan. Despite this predominantly Western focus, we also remain, as
always, poised to act quickly on any particularly attractive one-time deals in
the East. As we have mentioned in the past, we believe it is still too early
in the market cycle to consider the Greater Toronto Area in a meaningful way.
Boardwalk looks for meaningful rental growth rates in addition to initial
accretion in its acquisitions."
"Since the early days, our mandate has been to acquire undervalued
assets, invest in upgrades and quality maintenance, maximize operating
efficiency, integrate it into the Boardwalk platform and accretively manage
it. Boardwalk will sell only assets that we determine have reached their
maximum value. As the acquisitions market for multi-family residential
properties continues to tighten across the country, it is more essential than
ever to operate according to a long-sighted focus. Though the discipline to
hold rather than sell is at times difficult, the appreciation of our assets is
the most significant source of value creation over the long term."
The acquisition market for multi-family rentals in Canada continues to be
a highly competitive 'seller's market'. We are in discussion on a number of
possible acquisitions; however, we cannot be certain of closing on any of
these transactions."
Growth and New Directions
At the end of the third quarter of 2006, one property, consisting of
90 units located in Calgary, Alberta, was reclassified as property held for
redevelopment as a result of Boardwalk's plan to convert these suites to
condominium units for sale. This condominium conversion is now 50% sold at
average sale prices of $320,000, which is significantly higher than our
originally targeted sale price of $260,000. However, construction costs to
convert this property were also significantly over our original budget, rising
from an initial estimate of $50,000 per unit to a final total of approximately
$100,000 per unit. A significant part of this increase in renovation cost was
a result of increased renovation quality and specification than originally
planned. The net proceeds from the sale of our condominiums will go towards
buying back our trust units, which represents better value than purchasing or
building new apartment units.
Boardwalk has amended its Declaration of Trust to allow construction of
new rental units if the risk - reward ratio is appropriate. Boardwalk approved
further amendments to its Declaration of Trust at our 2006 Annual General
Meeting to allow for even greater flexibility in this regard. As Sam Kolias,
CEO, said: "We continue to look for ways to maximize value, and believe that
the rental market in Alberta justifies new construction, especially on some of
our currently low-density assets. At this point, we are in the early stages of
determining new construction feasibility. The construction market is extremely
busy in Alberta, and we continue to experience delays in the design,
development and permitting stages. We believe the entire planning,
construction and completion timeline will be approximately three years. We
believe that new construction will ultimately prove valuable both to our
Unitholders, and to our communities which currently have relatively low
numbers of rental units per capita."
Continued Financial Strength
The Trust maintained its solid financial position in the First Quarter of
2007. Boardwalk's total mortgage and debt was $1.7 billion as at March 31,
2007, up from $1.5 billion at December 31, 2006, and up from $1.5 billion at
March 31, 2006. As at March 31, 2007, the Trust's total debt had an average
maturity of approximately three years with a weighted average interest rate of
5.28%. The Trust's total debt-to-total-market-capitalization ratio was 39.9%.
The Trust's interest coverage ratio, excluding gains, for the three-month
period ended March 31, 2007, was 2.11 times, compared to 1.88 times in the
same period last year.
Outlook and 2007 Financial Guidance
Commenting on the outlook for the Trust, Roberto Geremia, President,
said, "Given the continued improvement in our Alberta Portfolio, we again feel
it reasonable to increase guidance from the amounts originally estimated. Our
fiscal 2007 guidance for FFO on a per unit basis has been revised from the
initial guidance of $1.85 - $2.00 to $1.90 - $2.02. Our fiscal 2007 guidance
for Distributable Income on a per unit basis has been similarly increased from
the initial guidance of $1.87 - $2.02 to $1.92 to $2.04. These assumptions are
based on the expectation of an increase in stabilized NOI growth from the
original guidance of 8.0% to a revised guidance of 8.5%, and new property
acquisitions of between 1000 to 2000 new residential units for the year. The
2007 guidance assumes that the existing Alberta Natural Gas Rebate program
will be extended in its current form and rent increases in Alberta are not
curtailed by regulations. As is Boardwalk's current policy, we will update the
market on our Annual 2007 Guidance on a quarterly basis."
Increasing Distributions
Boardwalk's Trustees have approved an increase in the Trust's
Distributions to $1.60 per trust unit on an annualized basis, an increase of
8.1% from the $1.48 currently distributed. On a monthly basis, the Trust will
distribute $0.1333 per outstanding trust unit as compared to the current
monthly distribution of $0.1233. The monthly distribution change will be
effective to Unitholders of Record on May 31, 2007, and payable on June 15,
2007. To encourage participation and reward unitholders, investors registered
in the Distribution Reinvestment Plan ("DRIP") will continue to receive a
"bonus" distribution of additional Trust Units representing 3% of the amount
of their cash distributions reinvested pursuant to the Plan. A full copy of
the DRIP can be found on the Trust's website at: www.boardwalkreit.com.
Supplementary Information
Boardwalk produces Quarterly Supplemental Information that provides
detailed information regarding the Trust's activities during the quarter. The
first quarter 2007 Supplemental Information is available on our investor
website at www.boardwalkreit.com.
Teleconference on First 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 first quarter financial results and provide a corporate
update. Presentation materials will be made available on our investor website
at www.boardwalkreit.com prior to the call.
Participation & Registration: Please RSVP to Investor Relations at
403-531-9255 or by email to investor@bwalk.com.
Teleconference: The telephone numbers for the conference are:
416-644-3418 (within Toronto) or toll-free 1-800-814-4861 (outside Toronto).
Webcast: Investors will be able to listen to the call and view our slide
presentation over the Internet by visiting http://www.boardwalkreit.com
15 min. prior to the start of the call. An information page will be provided
for any software needed and system requirements. The live audiocast will also
be available at
www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1800920
Replay: An audio recording of the teleconference will be available from
2:00 pm ET on Friday, May 11, 2007 until 11:59 pm ET on Friday, May 18, 2007.
You can access it by dialing 416-640-1917 and using the passcode 21226681
followed by the pound sign. An audio archive will also be available on our
website (http://www.boardwalkreit.com/) approximately two hours after the
conference call.
Corporate Profile
Boardwalk REIT is an open-ended real estate investment trust formed to
acquire all of the assets and undertakings of Boardwalk Equities Inc.
Boardwalk REIT's principal objectives are to provide its unitholders with
monthly cash distributions, partially on a Canadian income tax-deferred basis,
and to increase the value of its units through the effective management of its
residential multi-family revenue producing properties and the acquisition of
additional properties. Boardwalk REIT currently owns and operates in excess of
260 properties with approximately 35,800 units totalling approximately
30 million net rentable square feet, and is Canada's largest owner/operator of
multi-family rental communities. Boardwalk REIT's portfolio is concentrated in
the provinces of Alberta, British Columbia, Saskatchewan, Ontario and Quebec.
(1) Funds From Operations ("FFO") is a generally accepted measure of
operating performance of real estate investment trusts and companies;
however, it is a non-GAAP measure. The Trust calculates FFO by taking
net earnings after discontinued operations, adjusting for gains or
losses on disposal of discontinued operation assets and extraordinary
items, and adding non-cash expenses including future income taxes and
amortization. The determination of this amount may differ from that
of other real estate investment trusts and companies. Distributable
Income ("DI") is calculated based on the definition as set out in the
Trust's declaration of trust and is computed by taking FFO and adding
back amortization on any deferred financing charges incurred prior to
May 3, 2004 as well as adjusting for any discounts or premiums
relating to the amortization of mark-to-market debt adjustment
incurred subsequent to the real estate investment trust conversion
date of May 3, 2004.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements relating to our
operations and the environment in which we operate, which are based on our
expectations, estimates, forecast and projections, which we believe are
reasonable as of the current date . These statements are not guarantees of
future performance and involve risks and uncertainties that are difficult to
control or predict. For more exhaustive information on these risks and
uncertainties you should refer to our most recently filed annual information
form which is available at www.sedar.com. Actual outcomes and results may
differ materially from those expressed in these forward-looking statements.
Readers, therefore, should not place undue reliance on any such
forward-looking statements. Further, a forward-looking statement speaks only
as of the date on which such statement is made and should not be relied upon
as of any other date. While we may elect to, we undertake no obligation to
publicly update any such statement to reflect new information or the
occurrence of future events or circumstances at any particular time.
<<
CONSOLIDATED BALANCE SHEETS
(CDN$ THOUSANDS)
As at March 31, December 31,
2007 2006
(Unaudited) (Audited)
-------------------------
Assets
Revenue producing properties (NOTE 4) $2,012,748 $1,836,429
Other assets (NOTE 5) 19,661 13,873
Future income taxes (NOTE 11) 550 316
Mortgages and accounts receivable 5,054 4,388
Segregated tenants' security deposits 11,155 9,998
Discontinued operations (NOTE 6) 11,684 5,456
-------------------------------------------------------------------------
$2,060,852 $1,870,460
-------------------------
-------------------------
Liabilities
Mortgages payable (NOTE 3) $1,544,391 $1,380,578
Debentures (NOTES 3 and 7) 118,524 118,448
Accounts payable and accrued liabilities 36,574 35,423
Refundable tenants' security deposits and other 14,448 13,102
Bank indebtedness 42,334 4,042
-------------------------------------------------------------------------
$1,756,271 $1,551,593
Unitholders' Equity
Unitholders' equity $304,581 $318,867
-------------------------------------------------------------------------
$2,060,852 $1,870,460
-------------------------
-------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(CDN$ THOUSANDS, EXCEPT PER UNIT AMOUNTS)
3 months 3 months
ended ended
March 31, March 31,
2007 2006
-------------------------
(Unaudited) (Unaudited)
Revenue
Rental income $87,570 $76,249
-------------------------
Expenses
Revenue producing properties:
Operating expenses 15,541 13,845
Utilities 13,646 12,792
Utility rebate (NOTE 12) (925) (1,382)
Property taxes 8,284 8,316
Administration 5,291 4,400
Financing costs 21,669 20,343
Deferred financing costs amortization (NOTE 3) 1,279 774
Amortization of capital assets 19,334 17,487
-------------------------------------------------------------------------
84,119 76,575
-------------------------
Earnings (loss) from continuing operations
before income taxes 3,451 (326)
Large corporations taxes - 149
Future income taxes (recovery) (NOTE 11) (232) (102)
-------------------------------------------------------------------------
Earnings (loss) from continuing operations 3,683 (373)
Earnings (loss) discontinued operations,
net of tax (NOTE 6) (52) 7,670
-------------------------------------------------------------------------
Net earnings 3,631 7,297
Other comprehensive income - -
-------------------------------------------------------------------------
Comprehensive income $3,631 $7,297
-------------------------
-------------------------
Basic earnings per unit (NOTE 10)
- from continuing operations $0.06 $0.00
- from discontinued operations 0.00 0.14
-------------------------------------------------------------------------
Basic earnings per unit $0.06 $0.14
-------------------------
-------------------------
Diluted earnings per unit (NOTE 10)
- from continuing operations $0.06 $0.00
- from discontinued operations 0.00 0.14
-------------------------------------------------------------------------
Diluted earnings per unit $0.06 $0.14
-------------------------
-------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY
(CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS)
3 months 3 months
ended ended
March 31, March 31,
2007 2006
-------------------------
(Unaudited) (Unaudited)
Trust units (NOTE 9)
Balance, beginning of period $365,744 $295,696
Units issued under equity financing,
net of issue costs (136) 63,568
Units issued under distribution reinvestment
plan 2,450 1,002
Restructuring costs - (112)
Deferred unit plan (NOTE 8) 630 -
-------------------------------------------------------------------------
Balance, end of period $368,688 $360,154
-------------------------
Cumulative earnings
Balance, beginning of period $154,917 $129,530
Net earnings for the period 3,631 7,297
-------------------------------------------------------------------------
Balance, end of period $158,548 $136,827
-------------------------
Cumulative comprehensive income
Balance, beginning of period $- $-
Other comprehensive income for the period - -
-------------------------------------------------------------------------
Balance, end of period $- $-
-------------------------
Cumulative distributions to unitholders
Balance, beginning of period $(201,794) $(129,483)
Distributions declared to unitholders (NOTE 10) (20,861) (17,080)
-------------------------------------------------------------------------
Balance, end of period $(222,655) $(146,563)
-------------------------
Total unitholders' equity $304,581 $350,418
-------------------------
-------------------------
Units issued and outstanding 56,411,163 56,185,618
-------------------------
-------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CDN$ THOUSANDS)
3 months 3 months
ended ended
March 31, March 31,
2007 2006
-------------------------
(Unaudited) (Unaudited)
Operating activities
Net earnings $3,631 $7,297
Earnings from discontinued operations,
net of tax 52 (7,670)
Future income taxes (recovery) (232) (102)
Amortization of capital assets 19,334 17,487
-------------------------------------------------------------------------
Funds from continuing operations 22,785 17,012
Funds from discontinued operations (28) 190
Net change in operating working capital (155) (848)
-------------------------------------------------------------------------
Total operating cash flows 22,602 16,354
-------------------------
Financing activities
Issue of trust units (net of issue costs)
(NOTE 9) 2,313 64,570
Restructuring costs - (112)
Distributions paid (20,854) (16,769)
Financing of revenue producing properties 246,140 3,288
Repayment of debt on revenue producing
properties (109,701) (17,776)
Deferred financing costs incurred
(net of amortization) (3,896) 214
-------------------------------------------------------------------------
114,002 33,415
-------------------------
Investing activities
Purchases of revenue producing properties
(NOTE 4) (160,191) (42,295)
Improvements to revenue producing properties (14,370) (6,979)
Net cash proceeds from sale of properties - 20,274
Additions to corporate technology assets (335) (307)
-------------------------------------------------------------------------
(174,896) (29,307)
-------------------------
Net increase (decrease) in cash and
cash equivalents balance (38,292) 20,462
Cash and cash equivalents (bank indebtedness),
beginning of period (4,042) 11,145
-------------------------------------------------------------------------
Cash and cash equivalents (bank indebtedness),
end of period $(42,334) $31,607
-------------------------
-------------------------
Supplementary cash flow information:
Capital taxes paid $- $210
Interest paid $21,064 $21,990
-------------------------
-------------------------
See accompanying notes to the consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended March 31, 2007
(TABULAR AMOUNTS IN CDN$ THOUSANDS, EXCEPT NUMBER OF UNITS AND PER UNIT
AMOUNTS UNLESS OTHERWISE STATED)
(UNAUDITED)
1. ORGANIZATION OF TRUST
Boardwalk Real Estate Investment Trust ("Boardwalk REIT" or the
"Trust") is an unincorporated, open-ended real estate investment
trust created pursuant to the Declaration of Trust, dated January 9,
2004 and as amended and restated on May 3, 2004 and May 10, 2006,
under the laws of the Province of Alberta. Boardwalk REIT was created
to invest in revenue producing multi-family residential properties or
interests within Canada, initially through the acquisition of
operations of Boardwalk Equities Inc. (the "Corporation"), which was
acquired on May 3, 2004.
2. BASIS OF PRESENTATION
These unaudited interim consolidated financial statements have been
prepared in accordance with the recommendations of the handbook of
the Canadian Institute of Chartered Accountants ("CICA Handbook") and
are consistent with those used in the audited consolidated financial
statements as at and for the year ended December 31, 2006, except as
disclosed in Note 3 below. These interim financial statements do not
include all of the disclosures required by Canadian generally
accepted accounting principles ("Canadian GAAP") applicable to annual
financial statements and, therefore, they should be read in
conjunction with the audited consolidated financial statements.
The preparation of financial statements in accordance with Canadian
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and to make
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from
those estimates.
Due to seasonality, the operating results for the three months ended
March 31, 2007 are not necessarily indicative of the results that may
be expected for the full year ending December 31, 2007 due to
seasonal variations in utility costs and other factors. Historically,
Boardwalk REIT has experienced higher utility expenses in the first
quarter as a result of the winter months, which create variations in
the quarterly results.
Certain comparative figures have been reclassified to conform to the
presentation of the current period, or as a result of accounting
changes.
3. ACCOUNTING POLICY 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 other comprehensive income while the
cumulative amount of 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:
March 31, December 31,
2007 2006
-------------------------
Mortgages Payable
Principal outstanding $1,588,349 $1,420,701
Unamortized deferred financing costs (45,825) (41,853)
Unamortized mark-to-market adjustment 1,867 1,730
---------------------------------------------------------------------
$1,544,391 $1,380,578
-------------------------
-------------------------
Debentures
Principal outstanding $120,000 $120,000
Unamortized deferred financing costs (1,476) (1,552)
---------------------------------------------------------------------
$118,524 $118,448
-------------------------
-------------------------
There were no material impact to the consolidated financial
statements on adoption of Section 3865 by the Trust.
4. REVENUE PRODUCING PROPERTIES
Acquisitions
3 months 3 months
ended ended
March 31, March 31,
2007 2006
-------------------------
Cash paid $160,191 $42,295
Debt assumed 31,209 -
---------------------------------------------------------------------
Total purchase price 191,400 42,295
Fair value adjustments to debt 376 -
---------------------------------------------------------------------
Book value $191,776 $42,295
-------------------------
-------------------------
Allocation of book value to revenue
producing properties $185,949 $40,764
Allocation of book value to other assets 5,827 1,531
---------------------------------------------------------------------
$191,776 $42,295
-------------------------
-------------------------
Multi-family units acquired 1,543 560
-------------------------
-------------------------
Dispositions
3 months 3 months
ended ended
March 31, March 31,
2007 2006
-------------------------
Cash received $- $20,274
Cost of dispositions - 426
---------------------------------------------------------------------
Total proceeds - 20,700
Net book value - 13,173
---------------------------------------------------------------------
Gain on dispositions $- $7,527
-------------------------
-------------------------
Multi-family units sold - 194
-------------------------
-------------------------
5. OTHER ASSETS
As at March 31, December 31,
2007 2006
-------------------------
Corporate technology assets
(net of amortization) $3,456 $3,436
Head office building
(net of amortization) 2,364 2,329
Deposits on potential property acquisitions 200 814
Prepaid parts and supplies 2,433 2,097
Lease goodwill and customer relationship
intangibles, net of accumulated amortization 5,999 1,271
Prepaid property taxes 2,723 1,193
Prepaid and other 2,486 2,733
---------------------------------------------------------------------
$19,661 $13,873
-------------------------
-------------------------
Accumulated amortization for corporate technology assets and head
office building at March 31, 2007 were $12.4 million and
$1.0 million, respectively (December 31, 2006 - $12.1 million and
$1.0 million, respectively). Accumulated amortization for lease
goodwill and customer relationship intangibles at March 31, 2007 was
$9.1 million (December 31, 2006-$7.9 million)
6. DISCONTINUED OPERATIONS
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 in Calgary was
classified as discontinued operations as a result of the Trust
initiating an active program to dispose of this property. This
property is being developed into condominium units for sale at a
price that is reasonable in relation to its current fair value. This
Calgary property formed part of our Alberta segment in our segmented
information disclosure. The following tables set forth the results of
operations as well as the assets and liabilities associated with the
discontinued operations.
3 months 3 months
ended ended
March 31, March 31,
2007 2006
-------------------------
Revenue
Rental income $188 $473
-------------------------
Expenses
Revenue producing properties:
Operating expenses 87 89
Utilities 45 58
Utilities rebate (5) (12)
Property taxes 23 45
Administration 53 14
Financing costs 13 87
Deferred financing cost amortization - 2
Amortization of capital assets 24 47
---------------------------------------------------------------------
240 330
-------------------------
(52) 143
Gain on dispositions - 7,527
---------------------------------------------------------------------
Earnings (loss) from discontinued operations $(52) $7,670
-------------------------
-------------------------
March 31, December 31,
2007 2006
-------------------------
Discontinued Assets
Revenue producing properties held for sale $4,067 $-
Properties held for redevelopment 7,617 5,456
---------------------------------------------------------------------
Total $11,684 $5,456
-------------------------
-------------------------
7. DEBENTURES
On January 21, 2005, Boardwalk REIT completed the issuance of
unsecured debentures in a public offering in the aggregate amount of
$120 million. The debentures are rated "BBB" with a stable trend by
Dominion Bond Rating Services, carry a coupon rate of 5.31% and will
mature on January 23, 2012. Net proceeds of approximately
$119 million 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 is being amortized over the term of the
unsecured debentures.
8. DEFERRED UNIT PLAN
During 2006, the Trust implemented a deferred unit plan. The plan
entitles trustees and officers, at the participant's option, to
receive deferred units in consideration for trustee fees or executive
bonuses, respectively, with the Trust matching the number of units
received. The deferred units vest 50% on the third anniversary and
25% on each of the fourth and fifth anniversaries, subject to
provisions for earlier vesting in certain events. The deferred units
earn additional deferred units for the distributions that would
otherwise have been paid on the deferred units (i.e., had they
instead been issued as Trust Units on the date of grant). Once
vested, participants are entitled, at their option, to receive an
equivalent number of Trust Units or the equivalent value in cash of
the vested deferred units and the corresponding additional deferred
units. The deferred unit plan was approved by unitholders on May 10,
2006. At the end of March 31, 2007, total compensation costs of
$1.5 million were recognized in income related to employee awards
under the deferred unit plan.
The status of the outstanding deferred units is as follows:
Summary of Deferred Unit Plan Outstanding Vested
Deferred units granted 72,746 -
Additional deferred units earned on
unvested units 1,000 -
---------------------------------------------------------------------
December 31, 2006 73,746 -
Deferred units granted 20,668 -
Additional deferred units earned on
unvested units 672 -
---------------------------------------------------------------------
March 31, 2007 95,086 -
---------------------------------------------------------------------
---------------------------------------------------------------------
9. UNITHOLDERS' CAPITAL
The Plan of Arrangement (the "Arrangement") to convert Boardwalk
Equities Inc. from a share corporation to a real estate investment
trust was completed on May 3, 2004. On conversion of Boardwalk
Equities Inc. to a trust, Boardwalk Equities Inc. incurred
$10.3 million in restructuring costs. Under the Arrangement, the
former shareholders of Boardwalk Equities Inc. received Boardwalk
REIT units or Class B Limited Partnership ("LP Class B") units of a
controlled limited partnership of the Trust, Boardwalk REIT Limited
Partnership.
The LP Class B units are non-transferable, except under certain
circumstances, but are exchangeable, on a one-for-one basis, into
Boardwalk REIT units at any time at the option of the holder. Prior
to such exchange, distributions will be made on the exchangeable
units in an amount equivalent to the distributions which would have
been made had the units of Boardwalk REIT been issued. Each LP
Class B unit was accompanied by a Special Voting unit, which will
entitle the holder to receive notice of, attend and vote at all
meetings of unitholders. There is no value assigned to the Special
Voting units. The LP Class B units issued are included in the
unitholders' capital contributions on the balance sheet. The changes
in unitholders' capital contribution are as follows:
Summary of Unitholders' Capital
Contributions Units Amount
December 31, 2005 53,224,194 $295,696
Units issued under equity financing,
net of issue costs 2,915,000 63,583
Units issued under distribution
reinvestment plan 212,589 5,784
Restructuring costs - (140)
Deferred unit plan - 821
---------------------------------------------------------------------
December 31, 2006 56,351,783 $365,744
Units issued under distribution reinvestment
plan 59,380 2,450
Issue costs - (136)
Deferred unit plan (NOTE 8) - 630
---------------------------------------------------------------------
March 31, 2007 56,411,163 $368,688
-------------------------
-------------------------
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 51,936,163
Special Voting Units issued to holders of
LP Class B units 4,475,000
---------------------------------------------------------------------
Total trust units 56,411,163 $368,688
-------------------------
-------------------------
10. DISTRIBUTABLE INCOME AND PER UNIT INFORMATION
Distributable income per unit
Boardwalk REIT makes distributions to unitholders on a monthly basis
on or about the 15th day of the following month. The reported
distributable income is defined under the Trust's Declaration of
Trust ("DOT"). Under the DOT, as amended and restated, the Trust is
required to distribute, at a minimum, its reported taxable income.
The reconciliation of distributable income and per unit information
begins with total operating cash flows calculated in accordance with
Canadian generally accepted accounting principles and 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.
3 months 3 months
ended ended
March 31, March 31,
2007 2006
-------------------------
Total operating cash flows $22,602 $16,354
Net change in operating working capital 155 848
Add:
Deferred financing costs amortization 1,279 776
Deduct:
Deferred financing costs amortization post
May 2, 2004 (326) (265)
Amortization of net premium on long-term
debt assumed after May 2, 2004 (89) (11)
---------------------------------------------------------------------
Distributable income $23,621 $17,702
Distributions declared to unitholders $20,861 $17,080
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average units outstanding
- basic and diluted 56,387,144 53,309,392
Distributable income earned per unit $0.419 $0.332
Actual distributions declared per unit $0.370 $0.320
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per unit
3 months 3 months
ended ended
March 31, March 31,
2007 2006
-------------------------
Numerator
Earnings (loss) from continuing operations $3,683 $(373)
Earnings (loss) from discontinued
operations $(52) $7,670
---------------------------------------------------------------------
Denominator
Denominator for basic earnings per unit -
weighted average units (THOUSANDS) 56,387 53,309
---------------------------------------------------------------------
Denominator for diluted earnings per unit
adjusted for weighted average units and
assumed conversion (THOUSANDS) 56,387 53,309
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per unit from continuing operations
Basic $0.06 $0.00
Diluted $0.06 $0.00
---------------------------------------------------------------------
Earnings per unit from discontinued operations
Basic $0.00 $0.14
Diluted $0.00 $0.14
---------------------------------------------------------------------
---------------------------------------------------------------------
11. 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. 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
ended ended
March 31, March 31,
2007 2006
-------------------------
Continuing operations $(232) $(102)
Discontinued operations - -
---------------------------------------------------------------------
Total future income taxes (recovery) $(232) $(102)
-------------------------
-------------------------
Future income taxes (recovery) consist of the following:
3 months 3 months
ended ended
March 31, March 31,
2007 2006
-------------------------
Tax (recovery) expense based on expected
rate $109 $(155)
Adjustment to future income tax liabilities (341) 53
---------------------------------------------------------------------
Future income taxes (recovery) $(232) $(102)
-------------------------
The future income tax asset is calculated as follows:
As at March 31, December 31,
2007 2006
-------------------------
Tax asset related to operating losses $765 $294
Tax asset related to differences in tax and
book basis (215) 22
---------------------------------------------------------------------
Future income tax asset $550 $316
-------------------------
-------------------------
12. COMMITMENTS AND CONTINGENCIES
At March 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 twenty-one
months at a blended rate of approximately $0.068/kwh. The agreement
provides that the Trust purchase its power for all southern Alberta
properties under contract for the upcoming months.
Beginning in November 2003, the Alberta government implemented a
natural gas rebate program covering the winter usage months of
November through March. In October 2005, the natural gas rebate
program was extended to cover the month of October. In January of
2006, the Alberta government announced a three-year extension to the
program covering the winter months of October through March. The
extension of the natural gas rebate program will end March 31, 2009.
The rebate program becomes active when the natural gas consumer price
charged by two of the three major gas companies in Alberta exceeds
$5.50/GJ for any individual winter usage month. For January through
March 2006, Boardwalk REIT was eligible for estimated rebates
totalling approximately $1.4 million. For January to March 2007,
Boardwalk REIT was eligible for rebates totalling approximately
$0.9 million.
The Trust has also entered into three natural gas supply contracts,
which provide a degree of price certainty for natural gas usage in
the provinces of Saskatchewan, Ontario and Quebec. The contracts
cover between 75 - 100% of the Trust's natural gas requirements for
each of the provinces. The physical supply agreement for Saskatchewan
runs from November 1, 2006 to October 31, 2007 and provides the
commodity at a price of $8.48/GJ. The physical supply agreements for
Eastern Canada run from June 1, 2006 to June 1, 2007 and provide the
commodity near $8.00/GJ.
While the above utility contracts for electrical power 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.
Boardwalk REIT, in the normal course of operations, will become
subject to a variety of legal and other claims against the Trust.
Management and the Trust's legal counsel evaluate all claims on their
apparent merits, and accrue management's best estimate of the
estimated costs to satisfy such claims. Management believes that the
outcome of legal and other claims filed against the Trust or its
predecessor will not be material to Boardwalk REIT.
13. GUARANTEES
In the normal course of business, various agreements may be entered
that may contain features that meet the AcG-14 definition of a
guarantee. AcG-14 defines a guarantee to be a contract (including an
indemnity) that contingently requires an entity to make payments to
the guaranteed party based on (i) changes in an underlying interest
rate, foreign exchange rate, equity or commodity instrument, index or
other variable, that is related to an asset, a liability or an equity
security of the counterparty, (ii) failure of another party to
perform under an obligating agreement or (iii) failure of a third
party to pay its indebtedness when due.
In connection with the sales of properties, a mortgage assumed by the
purchaser may 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 March 31, 2007
is approximately $5.4 million (March 31, 2006 - $5.6 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 March 31, 2007, no
amounts have been recorded in the consolidated financial statements
with respect to the above noted indirect guarantees.
14. SEGMENTED INFORMATION
Boardwalk REIT specializes in multi-family residential housing and
operates primarily within one business segment in five provinces
located in Canada. The following summary presents segmented financial
information for Boardwalk REIT's business by geographic location.
3 months 3 months
ended ended
March 31, March 31,
2007 2006
-------------------------
Alberta
Revenue $49,166 $40,024
-------------------------
Expenses
Operating 7,536 5,954
Utilities 6,648 6,508
Utility rebates (922) (1,378)
Property taxes 3,196 3,223
---------------------------------------------------------------------
16,458 14,307
-------------------------
Net operating income $32,708 $25,717
-------------------------
Saskatchewan
Revenue $9,212 $8,693
-------------------------
Expenses
Operating 1,594 1,457
Utilities 1,725 1,469
Property taxes 1,171 1,251
---------------------------------------------------------------------
4,490 4,177
-------------------------
Net operating income $4,722 $4,516
-------------------------
Ontario
Revenue $9,376 $9,378
-------------------------
Expenses
Operating 1,515 1,428
Utilities 2,028 1,883
Property taxes 1,756 1,859
---------------------------------------------------------------------
5,299 5,170
-------------------------
Net operating income $4,077 $4,208
-------------------------
British Columbia
Revenue $2,771 $1,651
-------------------------
Expenses
Operating 621 357
Utilities 295 139
Property taxes 254 189
-------------------------
1,170 685
-------------------------
Net operating income $1,601 $966
-------------------------
Quebec
Revenue $17,014 $16,397
-------------------------
Expenses
Operating 2,965 3,115
Utilities 2,994 2,811
Property taxes 1,889 1,760
---------------------------------------------------------------------
7,848 7,686
-------------------------
Net operating income $9,166 $8,711
-------------------------
Total
Net operating income $52,274 $44,118
Unallocated revenue(*) 31 106
Unallocated expenses(xx) (48,674) (36,927)
---------------------------------------------------------------------
Net earnings for the period $3,631 $7,297
-------------------------
-------------------------
As at March 31, December 31,
2007 2006
-------------------------
Alberta
Identifiable assets
Revenue producing properties $1,107,543 $933,628
Mortgages and accounts receivable 54 863
Tenants' security deposit 9,173 7,988
-------------------------
$1,116,770 $942,479
-------------------------
Saskatchewan
Identifiable assets
Revenue producing properties $171,031 $172,269
Mortgages and accounts receivable 151 195
Tenants' security deposits 1,556 1,491
-------------------------
$172,738 $173,955
-------------------------
Ontario
Identifiable assets
Revenue producing properties $207,847 $208,927
Mortgages and accounts receivable 52 126
-------------------------
$207,899 $209,053
-------------------------
British Columbia
Identifiable assets
Revenue producing properties $102,907 $107,321
Mortgages and accounts receivable 26 46
Tenants security deposits 426 408
-------------------------
$103,359 $107,775
-------------------------
Quebec
Identifiable assets
Revenue producing properties $419,204 $419,962
Mortgages and accounts receivable 746 819
-------------------------
419,950 420,781
-------------------------
Total assets
Identifiable assets $2,020,716 $1,854,043
Unallocated assets(xxx) $40,136 $16,417
-------------------------
$2,060,852 $1,870,460
-------------------------
-------------------------
(*) Unallocated revenue includes property sales, interest income,
revenue from discontinued operations and other non-rental
income.
(xx) Unallocated expenses include cost of property sales, operating
expenses from discontinued operations, non-rental operating
expenses, administration, financing costs, amortization, income
taxes and other provisions.
(xxx) Unallocated assets include discontinued assets, cash, short-
term investments and other assets.
15. SUBSEQUENT EVENTS
Subsequent to March 31, 2007, Boardwalk REIT amended and restated on
May 10, 2007 its Declaration of Trust. The amended and restated DOT
amended certain investment guidelines and operating policies of the
Trust, all of which are substantially described on page 31 in the
Management Information Circular dated March 30, 2007.
Subsequent to March 31, 2007, Boardwalk REIT sold a property
consisting of two buildings totaling 51 apartment units located in
Edmonton, Alberta to an unrelated third-party. The unsolicited sales
offer was received prior to the Trust closing on the acquisition of
the property. The property had a selling price of $5.9 million and a
purchase price of $4.2 million, and the sales transaction closed on
May 1, 2007.
Subsequent to March 31, 2007, Boardwalk REIT acquired a property in
Spruce Grove, Alberta, totalling 160 apartment units from an
unrelated third party for an aggregate purchase price of $16 million.
The transaction is scheduled to close May 28, 2007 and will be funded
initially using Boardwalk REIT's credit facility.
Subsequent to March 31, 2007, Boardwalk REIT has increased its trust
unit distributions from $1.48 per trust unit on an annualized basis
(or $0.1233 per trust unit on a monthly basis) to $1.60 per trust
unit on an annualized basis (or $0.1333 per trust unit on a monthly
basis). The monthly trust unit distribution change will be effective
to Unitholders of record on May 31, 2007, and payable June 15, 2007.
>>
%SEDAR: 00020684E
For further information please contact:
Boardwalk REIT
Sam Kolias,
CEO,
(403) 531-9255;
Roberto Geremia,
President,
(403) 531-9255;
